During tough times such as the current pandemic, our CPF account is something that can be relied upon.
The Ordinary Account (OA) offers a 2.5% guaranteed interest rate, and the first S$20,000 even gets a slightly higher 3.5% interest rate.
Although the CPF Special Account (SA) provides an even better interest rate of 4%, the use of these funds is limited as they have been earmarked for one’s retirement.
The OA provides significantly more flexibility on how you can deploy the monies.
The funds from OA can be used to purchase an HDB flat, pay for your children’s education, or invested for higher returns through the CPF Investment Account.
On that last point, it’s worth considering investing one’s OA funds, as the 2.5% interest rate is hardly sufficient to beat inflation.
Here are three promising blue-chip companies that can provide a higher dividend yield than the guaranteed 2.5% interest rate on the OA.
Singapore Exchange Limited (SGX: S68)
Singapore Exchange Limited, or SGX, is Singapore’s sole stock exchange operator.
The bourse operator has been diversifying its product offerings over the last few years under the stewardship of CEO Loh Boon Chye.
Now, SGX is deemed o be a multi-asset exchange, offering a suite of products and solutions for investors and fund managers to manage and hedge their portfolios.
SGX reported a strong set of earnings for its third-quarter fiscal year 2020 ended 31 March 2020.
Revenue, at S$296 million, was up 29% year on year. Net profit surged 38% year on year to S$138 million.
The group declared an interim quarterly dividend of S$0.075. Annualised, the total annual dividend will be S$0.30.
At the last traded price of S$8.37, the trailing 12-month dividend yield for SGX stands at 3.6%.
Although SGX recently reduced its licence agreement with MSCI and will stand to suffer a 10% to 15% drop in net profit as a result, we believe the group will be able to sustain dividends at the current level.
Loh also plans to work on SGX’s suite of derivatives or collaborate with other partners to do so.
OCBC Ltd (SGX: O39)
Oversea-Chinese Banking Corporation, or OCBC, is one of Singapore’s three big banks.
The bank offers a comprehensive range of banking products and services such as corporate banking, investments and insurance to both individuals and corporate customers.
For the first quarter of 2020, net profit from banking operations saw a 28% year on year decline as the bank set aside higher levels of provisions for bad loans due to COVID-19.
However, customer loans were up 5% year on year while the net interest margin (NIM) remained stable at 1.76%.
While the bank is unsure of how bad the pandemic’s impact will be, it has a strong track record of delivering sustainable earnings through various economic cycles.
OCBC expects its NIM to compress due to lower global interest rates, while non-performing loan ratio may also spike up in the near-term.
We believe that the bank will turn out fine over the long-term, as it is well-capitalised and managed under CEO Samuel Tsien.
OCBC paid out a total dividend of S$0.53 last year, representing 47% of its earnings.
At the last traded share price of S$9.88, the trailing 12-month dividend yield was 5.4%.
Singapore Technologies Engineering (SGX: S63)
Singapore Technologies Engineering, or STE, is a diversified engineering conglomerate with four distinct divisions — aerospace, electronics, land systems and marine.
The group employs around 23,000 people across Asia, US, Europe and the Middle East, and serves customers in the defence, government and commercial segments.
STE released a business update for the first quarter of 2020.
Aerospace and Electronics divisions experienced negative impacts.
For the maintenance, repair and overhaul business, STE is in discussions with customers on rescheduling.
Some tenders for the Electronics division have been put on hold, while project milestones and delivery schedules have suffered delays.
However, this weakness was offset by strong contract wins for both divisions during the quarter, amounting to a total of S$1.6 billion.
Also, STE’s defence business remains strong and provides some stability to revenue.
The group’s order book as at 31 March 2020 stood at S$16.3 billion and provides good revenue visibility as these are multi-year contracts signed with long-term customers.
STE paid out a total dividend of S$0.15 per share for the last five fiscal years, underscoring the stability of its business model.
This works to a dividend yield of around 4.2% at the last traded price of S$3.59.
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Disclaimer: Royston Yang owns shares in Singapore Exchange Limited.