Don’t let a good bear market go to waste.
With share prices battered to multi-year lows due to the Covid-19 outbreak, many attractive investment opportunities have emerged.
That said, an investor also has to be discerning when looking out for suitable companies to park their money in. There is, after all, no telling how long this pandemic will last.
If I assumed that I had a sum of S$20,000, I would allocate it right now based on two important criteria.
The first is that the company should have a strong competitive position within its industry, along with a sturdy balance sheet. These criteria will ensure it can weather through the crisis without needing to raise capital or collapsing.
The second criteria would be the payment of regular dividends. The company in question should be able to continue to pay dividends through the crisis.
This is how I would allocate the S$20,000 among these three companies.
Singapore Exchange Limited (SGX: S68)
Singapore Exchange Limited, or SGX, is Singapore’s sole stock exchange operator.
The bourse operator provides a platform for the buying and selling of securities such as equities, fixed income and derivatives.
With its monopolistic position, investors need not fear that SGX will collapse as the stock exchange is an integral part of Singapore’s financial system.
Furthermore, the group held S$725 million in cash as of 31 December 2019 and has no debt on its balance sheet.
The group’s derivatives division also saw record trading volumes in February due to rising concern over the impact of Covid-19 on the global economy. This drove increased demand for risk management solutions offered by SGX.
I will buy around 800 shares of SGX at the share price of S$8.85, spending around S$7,000 of the S$20,000.
SGX pays a quarterly dividend of S$0.075, and full-year dividend amounts to S$0.30 for a 3.4% dividend yield.
OCBC Ltd (SGX: O39)
OCBC is probably no stranger to most investors, being one of the three big banks in Singapore.
The group offers a broad array of banking services ranging from commercial banking to investment banking, asset management and insurance.
The bank’s key markets are Singapore, Malaysia, Indonesia and Greater China, and all show promising long-term growth.
OCBC reported a record net profit after tax of S$4.87 billion for the fiscal year 2019 and bumped up its full-year dividend to S$0.53.
Covid-19 will adversely impact the bank by raising its credit costs, but the bank should be resilient enough to withstand the damage.
OCBC has a strong track record of weathering crises such as the Global Financial Crisis in 2008-2009 and the oil price crash in 2015-2016.
Because of the bank’s stability and reputation, I will allocate S$8,500 to buy 1,000 shares. The 12-month trailing dividend yield for OCBC is around 6.2%.
VICOM Limited (SGX: V01)
VICOM Limited is a premier testing and inspection centre. The group has two main divisions — vehicle inspection and non-vehicle inspection.
The vehicle inspection division commands a market share of above 70% in Singapore.
The Singapore Government has mandated that the vehicle growth rate should be reduced to zero per cent to limit the total number of cars on the island. Despite that, VICOM’s Annual Report 2019 states that 41,000 private car owners renewed their Certificates of Entitlements (COEs) that year.
That would mean that older cars would have to be inspected more often — once a year rather than bi-annually.
VICOM has also invested in an Israeli company called Fortellix, which develops solutions to address challenges in autonomous vehicle (AV) testing and compliance. This will pave the way for the group to become a leading player in AV testing in future.
The Government has also announced in October 2019 that all personal mobility devices (PMDs) would have to go through mandatory inspection every two years, starting April 2022.
The vehicle inspection arm has more than enough initiatives to keep it busy. But, the non-vehicle inspection division may face challenging times due to a potential worldwide recession.
However, the group has a strong balance sheet with S$92.8 million in cash and no debt (as at end-2019).
This should allow VICOM to survive and emerge stronger after the recession has passed.
I will buy around 600 shares of VICOM, spending S$4,200. The group’s trailing 12-month dividend yield stands at 5.4%.
Get Smart: Stability plus income
Given the scenario, I believe I have allocated my S$20,000 wisely
Around 35% of it was used to buy SGX, 43% to buy OCBC, and the remaining 21% to buy VICOM.
These three companies offer me peace of mind and a good night’s sleep as I am confident that they can weather the crisis.
Besides, I will also receive an annual dividend of S$1,000 from owning these three companies. This translates to around a 5% yield based on the allocated S$20,000, which is more than sufficient to bear inflation.
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Disclaimer: Royston Yang owns shares in Singapore Exchange Limited and VICOM Limited.