It’s natural for investors to seek safety during a crisis.
Blue-chip companies are one such source as they comprise companies that are large, well-capitalised and have a track record of weathering multiple crises.
But not all blue-chip companies are worth considering.
When it comes to picking quality blue-chips, you should look for those that have a strong competitive moat, a market-leading position within their industry, and a long runway for growth.
Be wary of companies that may look cheap at first glance, but represent value traps that should best be avoided.
Finding suitable blue-chip companies to invest in for your CPF account is important as the Ordinary Account (OA) only yields a low 2.5% interest rate, barely sufficient to beat inflation of around 3%.
Here are three solid blue-chip companies that are yielding more than what the OA offers.
Singapore Exchange Limited (SGX: S68)
Singapore Exchange Limited, or SGX, is Singapore’s sole stock market operator.
The group fits the criteria for a dependable and resilient blue-chip company.
SGX has a natural monopoly as it is the only stock exchange in Singapore, and it also has a reputation for being a REITs hub, thus attracting capital from all over the world.
It has a long runway for growth as the bourse intends to evolve to become a multi-asset exchange offering a wide variety of securities and solutions for its customers.
This approach benefits the group as it helps clients to manage risks and come up with appropriate solutions for their portfolios, thus attracting more fund flows.
Recent business development efforts include the listing of the world’s largest Chinese pure government bond exchange-traded fund (ETF) with initial assets under management of US$676 million, as well as a collaboration with UK-based CryptoCompare to launch cryptocurrency indices.
SGX currently sports a forward dividend yield of around 3.5%, and there is a good chance the dividend can grow steadily over the long-term in line with the growth of its business.
DBS Group Holdings Ltd (SGX: D05)
DBS Group should be a familiar name, as it is one of the big three banks in Singapore.
The bank was also named “Best Bank in the World” for a third consecutive year by financial publication Global Finance and has a strong position in Asia.
Although the bank is facing headwinds due to COVID-19, loan growth has remained resilient and is expected to continue growing at around 5% year on year driven by non-trade corporate loans.
In its first half 2020 earnings report, DBS recorded a small 1% year on year increase in net interest income, but this was more than offset by higher non-interest income, which soared 42% year on year.
However, net interest margin weakened considerably from 1.9% to 1.74% in the first half, and CEO Piyush Gupta expects full-year net interest margin to be around 1.6%, reflecting the overall economic weakness.
The Monetary Authority of Singapore (MAS) had, back in July, called on the three local banks to limit their dividend payments for prudence sake.
DBS thus announced that its total annual dividends will be capped at S$0.72 per share, or S$0.18 per quarter, in line with MAS’ instruction.
The shares are still yielding around 3.5% at current levels, with the potential for the yield to rise once the cap is lifted next year.
Venture Corporation Limited (SGX: V03)
Venture is a global provider of technology products, services and solutions.
The group serves many important industries such as life sciences, genomics and medical devices and employs around 12,000 people worldwide.
Revenue for the first half of 2020 fell by almost 26% year on year to S$1.4 billion.
This was largely due to disruptions in supply chains and factory lockdowns in various countries where the group’s factories were located.
However, Venture continued to generate healthy free cash flow of S$265.7 million in the first half.
The group also increased its interim dividend from S$0.20 to S$0.25 in a show of confidence about its prospects.
The shares offer a trailing dividend yield of around 3.8%.
The electronics industry has a bright outlook as it is driven by advancements in artificial intelligence and the Internet of Things.
Venture could continue to grow its earnings over time and its dividend should also rise in tandem.
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Disclaimer: Royston Yang owns shares in Singapore Exchange Limited and DBS Group Holdings Ltd.
