Singapore banks and S-REITs have long been a favourite among Singaporean investors seeking passive income.
Yet, they could be missing out if they only focus on these two sectors.
Singapore’s stock exchange has more to offer than just banks and S-REITs for those who are seeking a steady dividend.
The key is to look for resilient businesses.
If a business has a proven ability to weather economic storms and remain profitable, it will be able to pay you, the shareholder, a dividend.
Here are two examples which stand out.
HRnetGroup Ltd (SGX: CHZ): A recruitment leader with a strong track record
Founded in 1992, HRnetGroup has emerged as a dominant force in Asian recruitment, operating across 17 cities.
Notably, it has remained profitable throughout multiple economic cycles since its founding.
Image credit: HRnetGroup AGM 2024 presentation slides
Listed on the Singapore Exchange in June 2017, HRnetGroup has demonstrated commendable growth.
Over the past five years, its revenue and net profit have grown at a compound annual growth rate (CAGR) of 6.2% and 4.8%, respectively.
While these results may not seem extraordinary, they stand out against the backdrop of a volatile recruitment industry.
The company’s consistent performance can be attributed to its strategic business mix, comprising two key segments: Professional Recruitment (PR) and Flexible Staffing (FS).
The PR segment boasts a very high gross profit margin (GPM) of 99%, acting as a significant earnings driver during economic booms. However, its demand fluctuates with economic conditions.
In contrast, the FS segment, with a lower gross margin, generates recurring revenue. This segment experiences increased demand during economic downturns, providing stability during uncertain times.
When it comes to dividends, HRnetGroup does not have a fixed policy. That said, the company has indicated its intention to distribute at least 50% of its net profit after tax (excluding exceptional items) to shareholders.
Since its listing, dividends have increased from S$0.023 to S$0.04 per share in 2023. At the current share price of around S$0.70, this translates to an attractive dividend yield of 5.7%.
The Hour Glass Limited (SGX: AGS): A luxury watch retailer with a strong brand
Do you admire Rolex or Patek Philippe watches?
You’re in luck.
The Hour Glass is one of a few Singapore authorised retailers offering these exquisite timepieces.
With a mission to be the watch world’s leading cultural retail enterprise, it has become a go-to destination for watch enthusiasts and collectors.
Hence, when there was a renewed interest in mechanical watches during the COVID-19 pandemic, The Hour Glass experienced a boost in both its revenue and net profit.
Between 2020 and 2024, revenue has risen by a CAGR of nearly 11% with its net profit doubling over the period.
Source: The Hour Glass 2024 Annual Report
Like HRnetGroup, The Hour Glass does not have a fixed dividend policy. However, it has a strong track record of sharing its earnings with shareholders.
As seen from the above graph, its dividends have grown in tandem with the increase in profits. Currently trading at around S$1.60, the stock offers an attractive dividend yield of 5.0%.
Navigating short-term challenges
Geopolitical tensions, inflation, and rising interest rates have presented challenges for many businesses, including HRnetGroup and The Hour Glass.
These factors contributed to a decline in earnings for both companies in their latest fiscal year.
While these headwinds may persist, both HRnetGroup and The Hour Glass are well-positioned to weather the storm.
Their strong balance sheet, characterised by net cash positions and robust free cash flow generation, provides a solid buffer.
Furthermore, the duo has experienced management teams at the helm who have proven their ability to navigate crises.
Of course, past performance is not indicative of future results.
Yet, the available data suggests that HRnetGroup and The Hour Glass are likely to maintain their profitability.
Hence, investors seeking a growing passive income stream may find these companies attractive due to their potential for increasing dividends.
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Disclosure: Chan Kin Chuah owns shares of HRnetGroup and The Hour Glass.
