The bourse operator not only enjoys a natural monopoly but has also slowly evolved from being just an exchange for stocks and bonds to a multi-asset exchange over the years.
Apart from being a dependable business to rely on during good times and bad, the group is also well known for being a reliable dividend payer.
SGX has paid out a dividend every single year since its fiscal 2001 (FY2001), and its dividend per share has increased from S$0.055 back then to the current S$0.32 for FY2022 (ending 30 June 2022).
Despite the increase over the years, the bourse operator’s dividend has stayed stagnant for almost three consecutive years at S$0.32 after SGX raised it from S$0.30 back in FY2018 and FY2019.
Does the group have the capacity to raise its dividends? Let’s find out.
A strong set of earnings
Back in February this year, SGX reported a strong set of earnings for its fiscal 2023’s first half (1H FY2023) ending 31 December 2022.
Revenue improved by 10% year on year to S$571 million while net profit jumped 30% year on year to S$285 million.
However, this figure included one-off and non-recurring items.
When adjusted for these, SGX’s net profit still rose by 7% year on year to S$237 million.
Adjusted earnings per share (EPS) came in at S$0.222 and an interim dividend of S$0.08 was declared, taking 1H FY2023’s total dividend to S$0.16.
Sharp-eyed investors will note that SGX paid out 72% of its underlying net profit as dividends.
This level of payout was roughly in line with the 75% of adjusted net profit that was paid as dividends in FY2022.
Tie-ups with regional exchanges
SGX has been busy of late as management forges partnerships and collaborations with regional exchanges.
Just last week, the group signed a memorandum of understanding (MOU) with Shanghai Stock Exchange (SSE) to launch an SSE-SGX exchange-traded fund (ETF) link.
The agreement will enable both exchanges to jointly develop and promote the ETF markets in both countries using a master-feeder fund model.
This new link should further increase the range of investment options for investors following the listing of three ETFs last year with the Shenzhen Stock Exchange.
The daily turnover for Chinese equity ETFs for the first quarter of this year jumped 50% following the launch of these new ETFs, reflecting strong investor demand for such products.
With this new MOU with SSE, SGX should experience higher trading volumes in time to come as investors enjoy a wider “buffet” of ETF investment options.
SGX also inked an agreement with the Stock Exchange of Thailand (SET) to launch a new product under the Thailand-Singapore Depository Receipt (DR) linkage.
Under this agreement, SGX will introduce Singapore Depository Receipts (SDRs) and sign an MOU with SET to promote more joint investment and business opportunities between both exchanges.
As a start, three SDRs will be issued by Philip Securities to represent the underlying beneficial interest in three stocks on the SET50 Index – Airports of Thailand (BKK: AOT), CP All (BKK: CPALL), and PTT Exploration & Production (BKK: PTTEP).
With the launch of the SDRs, investors on SGX can now tap on the DR linkage to invest in Thai stocks.
As more securities are added to the SDR list in the future, this move looks set to boost trading volumes and market participation as investors are offered a wider range of investment choices.
Foreign exchange is another catalyst
In its 1H FY2023 earnings presentation, SGX highlighted the healthy growth of its over-the-counter (OTC) foreign exchange (FX) business.
The group continues to expand its FX platforms, products, and customer base and targets this pillar contributed 6% of group revenue for the period.
The average daily volume (ADV) for 1H FY2023 stood at US$68 billion, and management is confident that ADV is on track to hit US$100 billion in the medium term.
Get Smart: Room for higher dividends
SGX’s business is doing well and both its FX and commodity contracts divisions are seeing healthy growth.
Its tie-ups with regional bourses should also bear fruit in time to come as more investors hop onto its platform, thereby boosting trading volumes further.
The business also generated a healthy free cash flow of S$163.1 million for 1H FY2023.
With its current payout ratio at 72%, the bourse operator has room to increase its dividends in line with rising net profit.
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Disclosure: Royston Yang owns shares of Singapore Exchange Limited.