A sturdy business model is a good start for investors, but it may not be enough.
To be sure, there are a number of companies which have shown resilience throughout the pandemic. Examples include blue-chip companies and REITs.
Yet, without a growth runway or a catalyst, a resilient business might turn out to be a stagnant business.
A catalyst is defined as an event that positively impacts a specific sector or business.
However, its timing and exact financial impact are usually uncertain.
Some catalysts are “low-hanging fruit” that allow investors to partake in sustained growth if they have the patience to wait for the event to occur.
Importantly, catalysts may also act as a sustainable, long-term trend that elevates your investment portfolio to higher levels.
Here are three catalysts to watch out for that can positively affect your portfolio.
Relaxation of dividend payments
Because of the pandemic, Singapore’s central bank, the Monetary Authority of Singapore (MAS), had mandated in July last year that local banks should pay out a maximum of 60% of the dividends paid out in 2019.
Because of the above ruling, DBS Group (SGX: D05), United Overseas Bank Ltd (SGX: U11) and OCBC Ltd (SGX: O39) have all capped their 2020 payouts to 60% of what was paid in the prior year.
This move was a pre-emptive one by MAS to ensure that the local lenders were well-capitalised during a period of financial stress.
It was a prudent move to ensure that the banks, being the bedrock of the economy, could hold their own and enjoy a recovery once economic conditions improved.
One year has passed since MAS introduced this ruling, and the central bank recently announced that it will conduct further stress tests to assess if it was necessary to extend the current dividend caps.
It did acknowledge that earlier concerns regarding higher default rates for corporates had not materialised.
This fact paves the way for a possible relaxation of the dividend caps for all three banks, even as MAS announced a final extension of credit relief measures that will last till September 2021.
In the US, the Federal Reserve has already given banks a clean bill of health after subjecting them to annual stress tests.
With this announcement, Morgan Stanley (NYSE: MS) has doubled their dividend while the Bank of America (NYSE: BAC) also increased its dividend.
If MAS decides to relax its ruling, it could act as a catalyst for local banks to hike their dividends from 2020 levels.
Resumption of air travel
The pandemic had effectively shut down air travel as borders were shut to contain the spread of the coronavirus.
The aviation sector faced its worst crisis ever as passenger volumes ground to a near-halt and load factor plunged to its lowest level ever.
Singapore Airlines Limited (SGX: C6L), Singapore’s flagship carrier, reported a record loss for its fiscal year ended 31 March 2021.
SIA Engineering Co Ltd (SGX: S59), a provider of aircraft maintenance, repair and overhaul services, is undergoing a transformation plan to help it tide through the downturn.
There’s good news, though.
The swift dissemination of COVID-19 vaccines has enabled many countries to resume some semblance of normalcy.
The US and Israel have begun easing movement restrictions and their economies are also slowly recovering.
Investors can look forward to the eventual resumption of air travel that will help to lift aviation-related stocks.
The timing of this event may be highly uncertain, but you can be sure that there’s a huge pent-up demand for travelling that will explode once borders reopen.
Further easing of COVID-19 measures
The third catalyst involves the further easing of the current COVID-19 measures.
Singapore has resumed dining-in from 21 June but has limited this to just two persons per table.
The rule may be eased further depending on the trajectory of infections and also the vaccination rate.
Health Minister Ong Ye Kung has announced that the government is also ramping up vaccinations by doubling doses given to 80,000 per day.
With this accelerated vaccination program, the target is to get around two-thirds of the population fully vaccinated by National Day.
And as more people get vaccinated, the government will also draw up a roadmap for opening up the country.
Businesses such as Koufu Group (SGX: VL6) and Jumbo Group (SGX: 42R) will benefit greatly once dining-in measures are further eased.
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Disclaimer: Royston Yang owns shares of DBS Group and SATS.
