It is hard to ignore the crisis that is brewing in the Western banking sector.
Nearly two months ago, Silicon Valley Bank failed and was taken over by US regulators.
A day later, Signature Bank collapsed and was closed, with the government stepping in to guarantee all customer deposits.
We were about to learn that fear has no geographical borders.
Credit Suisse (NYSE: CS) saw its shares touch an all-time low as confidence plunged, allowing rival UBS AG (NYSE: UBS) to take over the storied bank for more than US$3 billion.
But just when you thought the crisis was over, Federal Regulators announced the seizure of First Republic Bank in the US on 1 May and sold its operations to JP Morgan (NYSE: JPM).
Just recently, PacWest Bancorp (NASDAQ: PACW) saw its shares plunge 58% as it announced that it was exploring “strategic options” to save the bank.
All this news must sound scary to an investor who has invested money in these institutions, only to see everything crumble in a matter of days or weeks.
So, how can you find a haven amid this turbulence?
The answer is in dividends.
Sturdy blue chips that pay out dividends
As an investor, you have a choice on where you invest.
Trying to pick fallen US banks today is like picking pennies in front of a steamroller.
The downside, which can be caused by a loss of confidence, could be the complete loss of your investment.
Instead, you should look for blue-chip stocks with solid franchises that are prudently managed and have a solid track record of dividend payments.
One of these stocks is DBS Group (SGX: D05), Singapore’s largest bank.
The lender had just upped its quarterly dividend to S$0.42 per share on the back of a record set of earnings for its latest quarter.
The bank is not only well-capitalised but also counts investment firm Temasek Holdings as one of its key shareholders.
Singapore’s sole bourse operator, SGX Group (SGX: S68), is another stalwart that enjoys a natural monopoly.
The stock exchange operator reported a strong set of earnings for its fiscal 2023’s first half, with revenue up 10% year on year and net profit climbing 30% year on year.
Don’t forget that SGX Group also pays out an S$0.08 quarterly dividend, taking the full-year dividend to S$0.32.
A noticeable pattern
Let us step away from blue chips for a moment.
Even for smaller, mid-sized companies, the payment of dividends signals that the business is well run and that it can generate sufficient free cash flow to sustain these payments.
Take VICOM (SGX: WJP) for instance.
The S$650 million business has a dominant market share of 73% in the vehicle inspection business.
Unsurprisingly, the business has also been doling out consistent dividends over the years, with its most recent being a final dividend of S$0.0332, taking total dividends for 2022 to S$0.0664.
And if you crave decadent fried snacks, Old Chang Kee (SGX: 5ML) has a wide range of delectable tidbits such as chicken wings and spring rolls to delight your palate.
The food and beverage operator, which has a market capitalisation of just S$80 million, had just declared an interim dividend of S$0.01, similar to what it paid out a year ago.
It’s amazing that so many businesses, whether large or small, can be grouped by income-seeking investors for their ability to pay out consistent dividends.
Dependable REITs
Let’s not leave out the REIT sector as one of the most dependable sources of dividends.
Well-managed REITs with strong sponsors can provide you with the proverbial haven with a portfolio of quality assets that churn out consistent rental income.
In turn, this income translates to distributions that are either paid quarterly or half-yearly.
Mapletree Logistics Trust (SGX: M44U) is an example of a resilient REIT.
The industrial REIT recently reported that distribution per unit inched up 2.5% year on year to S$0.09011 despite the twin worries of high inflation and soaring interest rates.
There are other REITs with good sponsors that possess a healthy pipeline of assets that can be injected for future growth.
Get Smart: Dividends for life
The evidence is clear.
Dividends are a great way to assess if a business is doing well or not.
And businesses that chalk up great track records of paying out dividends are prime candidates for long-term investment.
Not only can they help you to build that much-needed stream of passive income, but they also act as safe investments to own during economic downturns.
Our team has spent decades scouring SGX for stocks. And we think dividends could be the answer to rising inflation and market uncertainty in 2023. With our newest FREE report, you’ll have everything you need to find, keep and make more money from dividend stocks. Click here to download it for free.
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Disclosure: Royston Yang owns shares of DBS Group, SGX Group and VICOM.
