Dear Smart Investor,
As the saying goes – tough times don’t last, but tough people do.
And it seems tough times may be on their way.
Prime Minister Lee Hsien Loong has cautioned that Singapore may be facing an economic storm in the next two years that may tip the country into a recession.
What will happen to your income? What about the stock market?
It’s pointless to try and predict when this will turn around, fully recover, or even hit bottom.
Despite the sobering forecast, you can choose to look past the doom and gloom to take control of your finances and investment portfolio.
As investors, there are ways that we can not only protect our wealth, but grow it during tough times.
Blunting the impact
It’s common to witness share prices fall sharply during recessionary periods.
A fall in demand for goods and services coupled with investor pessimism results in earnings falling while valuations also tumble in tandem with lower expectations.
We must remember though, that tough times don’t last forever.
If the business remains strong and its competitive moat remains intact, then you should witness a rebound in profits once the storm has passed.
Solid companies will likely continue to pay dividends, and these dividends can provide a steady stream of passive income.
Dividends are cash in your pocket that you can choose to spend or save, and it also helps to reduce the impact of any unrealised capital loss.
The tap does not run dry
Recessions may hurt numerous businesses, but many can continue to churn out healthy free cash flow. And they continue to pay dividends.
Take Boustead Singapore Limited (SGX: F9D), or BSL, for instance.
The offshore and marine conglomerate may be a tough company to understand, but it has built up a reputation for being a reliable dividend payer.
During the Great Financial Crisis (GFC), BSL continued to pay out dividends for its fiscal years (FY) 2008 and 2009.
FY2008 saw S$0.05 being paid while shareholders received a total of S$0.04 for FY2009.
Healthcare conglomerate Haw Par Corporation Limited (SGX: H02), which owns the famous Tiger Balm brand, has also maintained its dividends throughout the GFC.
The group paid out a total dividend of S$0.20 per share for FY2008 and FY2009.
These two companies have held steady during the pandemic and continued to churn out juicy dividends.
BSL paid out a total ordinary dividend of S$0.04 per share for both its fiscal years 2021 and 2022, while Haw Par paid out a total dividend of S$0.30 for 2021.
Healthy “REIT”-urns
Investors also have more options than in the past. REITs are now a staple part of Singapore’s investment landscape and are well-known for being dependable dividend machines.
Some of these REITs have built up an enviable track record of paying out distributions through good times and bad.
Suntec REIT (SGX: T82U) paid out a distribution per unit (DPU) of S$0.093965 for its fiscal year 2008 (FY2008) ended 30 June 2008.
A year later, it even raised its DPU to S$0.11028 despite the GFC. FY2010 saw DPU dip slightly to S$0.10848 but these three fiscal years have cemented the REIT’s reputation for being a reliable dividend payer.
Parkway Life REIT (SGX: C2PU) is another candidate for a resilient REIT.
For FY2008, DPU stood at S$0.0683 but increased to S$.0774 in FY2009.
Get Smart: Sleeping well at night
You need to study a company or REIT’s business characteristics to determine if they can continue churning out dividends during a recession.
The ones mentioned above have proven their mettle and allowed their shareholders and unitholders to sleep well at night.
Once the task of choosing the right investments has been completed, all you need is to have faith that these businesses can safely carry you through to calmer waters.
And of course, to help grow your wealth through good times and bad.
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Disclaimer: Royston Yang owns shares of Suntec REIT and Boustead Singapore Limited.
