Singapore’s Central Provident Fund (CPF) scheme provides a safe oasis from the COVID-19 pandemic.
The CPF Ordinary Account (OA) pays out an interest rate of 2.5% per year and has been doing so for many decades.
Although the money is safe as it’s guaranteed by the Singapore Government (which has a triple-A sovereign credit rating), this rate of return is still insufficient to beat long-term inflation that averages around 3%.
This is where investing comes in.
By investing your money in solid, growing companies, you can not only enjoy a steady stream of passive income through dividends but also steady capital appreciation over time.
You can invest using the CPF Investment Account (IA).
The IA is tagged to your CPF OA and allows you to invest the money within the OA to obtain returns higher than the default 2.5%.
As the CPF represents money that is set aside for your retirement, it’s probably prudent to invest it in dependable blue-chip companies.
Here are three blue-chip companies that offer great long-term growth prospects in addition to a good dividend yield.
Singapore Exchange Limited (SGX: S68)
Singapore Exchange Limited, or SGX, is Singapore’s sole stock exchange operator.
The bourse operator operates a platform for the buying and selling of a wide variety of securities such as equities, fixed income (bonds) and derivatives.
SGX, I believe, offers a great mix of both growth and dividends.
The group pays out a quarterly dividend of S$0.08 per share, for a total annual forward dividend of S$0.32.
At the last traded price of S$8.63, its shares offer a dividend yield of 3.7%.
SGX also reported a strong set of earnings for its fiscal year ended 30 June 2020.
Revenue jumped 16% year on year to S$1.05 billion, while net profit increased by 21% year on year to S$472 million.
The group saw improvements in all its divisions and benefitted from higher trading volumes across its suite of equities and derivatives.
With a return on equity of 40% and a growing dividend, SGX represents a high-quality business with a strong competitive edge.
Last week, SGX signed a long-term strategic partnership agreement with FTSE Russell to develop Asian multi-asset solutions.
Both parties will work on developing and marketing an Asian and Emerging Market focused, multi-asset derivatives offering to be launched in due course.
DBS Group Holdings Ltd (SGX: D05)
DBS Group Holdings Ltd is one of Singapore’s three big local banks.
The group offers a comprehensive range of banking services for both individuals and corporations.
DBS is another example of a business with a strong franchise that offers both long-term growth and consistent dividends.
The bank, however, did reduce its quarterly dividend to S$0.18 per share on the advice of the Monetary Authority of Singapore.
This is a pre-emptive move to conserve cash in light of the severity of the COVID-19 pandemic.
Full-year dividend now amounts to S$0.72 per share and DBS’ shares offer a forward dividend yield of around 3.4%.
Investors should note that the 40% reduction in dividend (as compared to last year) applies to the next four quarters only.
Apart from a higher level of allowances, DBS has recorded a higher total income for the first half of 2020, up 7% year on year to S$7.8 billion.
Profit before allowances increased by 12% year on year to S$4.7 billion.
Mapletree Industrial Trust (SGX: ME8U)
Mapletree Industrial Trust, or MIT, is a blue-chip REIT that owns a portfolio of industrial properties and data centres in Singapore and the USA.
As of 30 June 2020, MIT’s total assets under management (AUM) was S$5.9 billion and consists of 87 properties in Singapore and 27 properties in the USA.
The REIT’s distribution per unit (DPU) has held up relatively well during the crisis, only dipping by 7.4% year on year to S$0.0287 for the first quarter of the fiscal year 2021.
The decline was due to the retention of tax-exempt income of S$7.1 million to mitigate the impact of tenant relief measures.
MIT’s trailing 12-month DPU stands at S$0.1201, and its shares offer a dividend yield of 3.9%.
The REIT has proposed to acquire the remaining 60% interest in 14 data centres in the US for US$494 million.
This acquisition will increase MIT’s exposure to the resilient data centre segment and boost it to 39% of AUM.
It will also enhance the income stability for the portfolio as the data centres sit on freehold land with long leases coupled with annual rental escalations.
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Disclaimer: Royston Yang owns shares in Singapore Exchange Limited and DBS Group Holdings Ltd.