Every Singaporean’s CPF ordinary account (OA) offers a 2.5% interest that is relatively risk-free. That’s great. However, the 2.5% interest may barely cover inflation that ranges from 2% to 3%.
Thankfully, the CPF OA allows you to open a CPF Investment Account (IA) with which you can use to invest in stocks to grow your wealth.
Here are three blue-chip stocks that are perfect for your CPF IA.
1. DBS Group Holdings Ltd (SGX: D05)
DBS Group needs no further introduction. As Singapore’s largest bank, the group provides a wide and comprehensive range of banking services to both individuals and corporations.
Under the capable leadership of CEO Puyish Gupta, the bank has reported steadily increasing revenue and net profit.
DBS’ full-year 2019 net profit rose 14% year-on-year to a new record high of S$6.39 billion, while the bank’s return on equity improved from 12.1% to a record 13.2%.
The bank has raised its quarterly dividend from S$0.30 to S$0.33, and the annual dividend now stands at S$1.32 per share. This works out to a dividend yield of 5.3% at DBS’ closing price of S$25.10, more than double the CPF OA’s interest rate of 2.5%.
2. Singapore Exchange Limited (SGX: S68)
Singapore Exchange, or SGX, is Singapore’s sole stock exchange operator and operates a platform for the buying and selling of securities such as equities (shares), fixed income (bonds) and derivatives.
The bourse operator reported a strong first half 2020 set of earnings (it has a 30 June fiscal year-end), with operating revenue rising 11% year-on-year to S$478.5 million and net profit surging 14% year-on-year to S$213.3 million.
The group generates consistent and reliable free cash flows and has, over the years, undertaken acquisitions to boost its various capabilities.
The recent market statistics released by SGX for January 2020 show that there continued to be broad-based growth in trading activity across the group’s wide range of assets, including cash equities, equity derivatives, and foreign exchange contracts.
SGX pays out a quarterly dividend of S$0.075, for a full year dividend of S$0.30 per share. At the closing price of S$9.26, the group’s shares offer a trailing 12-month dividend yield of 3.2%.
3. SATS Ltd (SGX: S58)
SATS is a leading provider of airline catering and ground handling services. The group also operates central kitchens that provide a wide range of food products to clients such as Haidilao.
The group reported a downbeat set of earnings, with net profit for the first nine months of fiscal 2020 (the group has a 31 March year-end) falling by 12% year-on-year even though revenue went up by 11.2% year-on-year.
The reason for this was the consolidation of Ground Team Red, a new subsidiary acquired by SATS, as well as higher expenses relating to staff costs and depreciation.
The recent Covid-19 outbreak has also dampened near-term prospects for the group, as SATS is sensitive to air travel and tourism. However, the long-term prospects for SATS should remain sanguine. The group has committed to spending S$1 billion on mergers and acquisitions to strengthen its market share in key markets within its three core segments.
The group paid out an annual dividend of S$0.19 per share (S$0.06 interim and S$0.13 final) for FY 2019.
Due to Covid-19, SATS may reduce its dividend to cope with the fall in net profit and cash flows. Even if we assume an annual dividend of S$0.16, SATS shares still offer a trailing dividend yield of 3.5% at the closing price of S$4.51.
Get Smart: The need to invest
The CPF scheme was put in place to ensure Singaporeans can enjoy a comfortable retirement. With the Singapore Government’s Triple-A credit rating, it’s almost a sure bet that you can rely on the 2.5% interest in your OA to compound your retirement funds.
However, in order to supplement your income and further grow your nest egg, you have to consider investing your money. The three stocks above could be a very good starting point for a growth-oriented, income-driven portfolio.
Disclaimer: Royston Yang owns shares in SATS Ltd and Singapore Exchange Limited.