With Singapore’s economy slowing down, it’s natural to feel worried about an impending recession.
In mid-February, the Ministry of Trade and Industry downgraded its gross domestic product (GDP) forecast for 2020 due to the Covid-19 virus outbreak.
From a previously estimated range of 0.5% to 2.5%, the outlook is now for GDP growth of between -0.5% and 1.5%.
If the GDP falls into the negative range for two quarters in a row, we will have a recession on our hands.
Rather than being bogged down by worry over whether a recession will actually hit us, investors can proactively seek out companies that are able to weather such economic stress.
Here are three companies that we believe could be recession-proof and that can still continue to pay out regular dividends.
Singapore Exchange Limited (SGX: S68)
Singapore Exchange Limited, or SGX, is Singapore’s sole stock exchange operator. The group provides a platform for the buying and selling of a wide range of securities such as equities, fixed income and derivatives.
If a recession hits our shores, there will be more panic and fear, resulting in much more trading volume for our local bourse. With SGX’s ongoing transformation into a multi-asset exchange, it can also now offer more tools and options for both traders and fund managers to better manage their portfolios.
These include a variety of derivative products that cover equities, fixed income, currencies and commodities. And SGX continues to come up with even more of these products, with the latest being the introduction of methanol futures and swap contracts.
I believe that SGX can hold its own during a recession due to its strong monopoly position and its consistent free cash flow generation capability. The group is paying out a quarterly dividend of S$0.075 for a total annual dividend of S$0.30. Its shares provide a dividend yield of close to 3.5%.
Raffles Medical Group Ltd (SGX: BSL)
Raffles Medical Group, or RMG, is a comprehensive, integrated healthcare provider that operates hospitals and a chain of clinics around Singapore. The group also operates Raffles Dental, a team-based, multi-speciality dental group in Singapore and China.
In January last year, RMG opened its first hospital in China, located in Chongqing province. Raffles Hospital Chongqing is a 700-bed facility and has been ramping up its operations over the past year
The group is also slated to open its second Chinese hospital in Shanghai this year. With Covid-19 raging in China, demand for healthcare services is set to remain high.
Though these hospitals are expected to incur start-up losses, the long-term prospects for the group remain positive.
Healthcare is a resilient industry that will experience consistent demand through good times and bad. RMG pays out a total annual dividend of S$0.025, and its shares provide a dependable dividend yield of 2.5%.
Riverstone Holdings Limited (SGX: AP4)
Riverstone is a market leader in the manufacture of nitrile and natural rubber cleanroom gloves for both the healthcare and high-tech manufacturing industries, respectively. The group has six manufacturing facilities in Asia and has an annual production capacity of 9 billion gloves.
The group has seen consistent rising demand for its nitrile healthcare gloves over the years due to rising healthcare needs. Many countries are modernising their healthcare facilities, leading to increased demand for nitrile gloves.
Developed nations face an ageing population issue, where older folk require significantly more medical attention and care, thus also contributing to this steady rise in demand.
Needless to say, the Covid-19 outbreak has obviously also pushed up demand for nitrile gloves and medical consumables such as face masks.
Riverstone has a good track record of free cash flow generation and has been growing its capacity year on year. The group paid out an annual dividend of 7.4 Malaysian sen (around S$0.0244). Its shares offer a dividend yield of around 2.4%.
Get Smart: Responding to Covid-19
On February 18, the Government introduced a slew of measures in its Budget 2020’s “Stabilisation and Support Package” worth S$4 billion to help businesses to get through this rough patch.
While these measures stand to benefit a broad range of companies and industries that were adversely impacted by the virus, should the situation worsen, the Government has pledged to stand ready to do even more.
Aside from these immediate measures, investors also need to remember that investing is a marathon and not a sprint. In the short-term, there may be storms and bad weather, but if we keep the faith and carry on investing prudently, we can build ourselves a wonderful nest egg over the long-term.
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Disclaimer: Royston Yang owns shares in Singapore Exchange Limited.