Unless you’ve been living under a rock, you’ve probably encountered a weird mix of headlines in the news recently.
On one hand, the nascent recovery from the pandemic is gathering steam as pent-up demand for air travel pushes more people to spend on vacations.
On the other hand, surging inflation and sky-high interest rates are forming a toxic combination that threatens to crimp spending and deflate consumer demand.
What’s clear is this …
The world is going through an adjustment period and the way forward promises to be rocky, and uncertain.
To gain assurance that your portfolio will do fine, you should consider adding Singapore blue chip stocks into it.
Here are several reasons why blue-chip stocks make sense for your portfolio.
Stability and peace of mind
Blue chips are so named because they have weathered numerous economic cycles.
Management’s experience in managing tough challenges and its track record of going through good times and bad make them stable anchors during a bad storm.
These businesses are those you can rely on to preserve their competitive moat and market position even during troubled times.
Take DBS Group (SGX: D05) for instance.
Singapore’s largest bank has maintained its pole position and gone through many different crises such as the Asian Financial Crisis in 1997-1998, Great Financial Crisis in 2008-2009 and most recently, the pandemic.
Not only did the bank not crack under pressure, but it also reported a record net profit for its latest quarterly earnings.
Singapore Exchange Limited (SGX: S68), or SGX, is another example.
The bourse operator enjoys a natural monopoly and has held up well against the economic downturn in the last two years.
For its fiscal year ending 30 June 2022, SGX reported its highest revenue since its listing while reporting higher volumes for its currencies and commodities division.
Another important aspect of blue chips is their high liquidity.
Being part of the Straits Times Index (SGX: ^STI) means that many mutual funds and exchange-traded funds (ETFs) will actively buy and sell the 30 companies within it.
This liquidity allows you to quickly convert your shares for cash should there be an urgent need for you to raise cash.
Compare this feature with smaller companies that trade thinly or may not even trade at all.
Being vested in such small caps poses a risk when you need to liquidate a position.
Not only will it take time to execute a trade, but you may also push down the share price due to an absence of buyers.
Hence, liquidity should feature as a key consideration for including blue-chip stocks within your portfolio.
Let’s not forget that all the blue-chip stocks also pay out a dividend.
Dividends form a stream of passive income that can either supplement your earned income or act as vital cash inflows for your retirement years.
These include the seven REITs that are nestled in the Straits Times Index, as well as the other 23 non-REIT companies.
SGX has been paying out a dividend for the last 21 years, an impressive record by any measure.
Conglomerate Keppel Corporation Limited (SGX: BN4) is also a steady payer of dividends.
For its fiscal 2021 (FY2021), the group more than tripled its total dividend to S$0.33 from the low of S$0.10 in FY2020.
Integrated agribusiness giant Wilmar International Limited (SGX: F34) has also paid out a dividend every single year since it was listed in August 2006.
These consistent dividends will surely put a smile on the face of an income investor.
There is (still) growth
Some investors may have the mistaken notion that blue chips are unable to grow much larger as they are already so large.
Nothing could be further from the truth.
As long as a company continues to grow its revenue, earnings and cash flow, its share price should naturally follow.
Even Apple (NASDAQ: AAPL), currently the largest company in the world, started from humble beginnings and steadily grew to become a trillion-dollar business.
And you’d be surprised that there are still blue-chip stocks that are demonstrating promising growth prospects.
DBS, for one, has just hit a new all-time high for its recent net profit.
And Sembcorp Industries Ltd (SGX: U96) also recently snagged a portfolio of renewable assets in China.
The acquisition increases the group’s renewables capacity to 9.4 gigawatts (GW) and is just 0.6 GW short of the utility group’s target of reaching 10 GW by 2025.
On the REIT front, Keppel DC REIT (SGX: AJBU) continues to grow its portfolio and distribution per unit (DPU).
Its portfolio is now worth S$3.6 billion as of the third quarter of 2022, more than triple the assets under management of S$1 billion that the data centre REIT had at its IPO in December 2014.
DPU also increased from S$0.0651 in FY2015 to S$0.09851 in FY2021.
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Our safe-harbour stocks are a set of blue-chip companies that have been able to hold their own and deliver steady dividends. Growth accelerators stocks are enterprising businesses poised to continue their growth. And finally, the pandemic surprises are the unexpected winners of the pandemic.
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Disclaimer: Royston Yang owns shares of DBS Group, Singapore Exchange Limited, Apple and Keppel DC REIT.