It is well known that the Central Provident Fund (CPF) ordinary account (OA) offers an interest rate of 2.5%.
But there are six blue-chip companies that can offer better yields.
Savings and more …
As I mentioned in my previous article, the CPF system was set up by the government decades ago as a method of “forced savings”.
Over time, the system has evolved and is now considered a tool for building up retirement savings. I shared three stocks in my first article, and today, I am back with another three companies that also have yields above 2.5%.
The first three stocks below were from my first article, and the next three are new additions today.
1. DBS Group Holdings Limited (SGX: D05)
DBS Group is a household name that every Singaporean should know, as it also includes the Post Office Savings Bank (POSB) under its umbrella.
Being one of Singapore’s three big banks, DBS Group offers a wide range of banking services to both individuals and corporations.
Headed by CEO Piyush Gupta, the group has performed well over the years and grown both its total revenue and net profit by impressive amounts.
In its recent 2019 third-quarter earnings, DBS Group saw its total revenue increase by 13% year-on-year to hit a new high of S$3.8 billion, while profit before allowances jumped 17% year-on-year to S$2.2 billion, also a new record high.
For investors, the group has declared a quarterly dividend of S$0.30 per share, adding up to a trailing 12-month dividend of S$1.20 per share.
At the last traded share price of S$26.00, DBS shares are yielding around 4.6%.
2. Singapore Exchange Limited (SGX: S68)
Singapore Exchange, or SGX, is Singapore’s sole stock exchange. The bourse is a platform for the buying and selling of a wide variety of securities such as equities, fixed income (bonds), derivatives, options and currencies.
As SGX is the only stock exchange operator in Singapore, it enjoys a monopolistic position and, therefore, has a very strong competitive moat.
SGX is growing its derivatives division to cater to demand from investors for portfolio management solutions and risk hedging strategies.
The bourse reported a strong 2020 first-quarter result with revenue rising 19% year-on-year to S$248 million and net profit jumping 25% year-on-year to S$114 million.
SGX has declared an interim quarterly dividend of S$0.075 per share.
At the last traded price of around S$9.04, SGX shares are offering a decent dividend yield of around 3.3%.
3. SATS Limited (SGX: S58)
SATS is a leading provider of both gateway solutions (for airlines) and food solutions.
Food solutions include airline catering for airlines such as Singapore Airlines (SGX: C6L) and Cathay Pacific, and the division also runs central kitchens that supply a wide variety of food items to leading restaurant chains such as Haidilao and Yum! China.
Gateway services include ramp and baggage handling and airfreight handling.
SATS’ growth over the years has been powered by the expansion of Terminal 4 at Changi Airport, in tandem with growing tourist numbers from China, Japan, India, and Indonesia.
That said, SATS’s fiscal 2020 second-quarter results were mixed, seeing revenue increasing by 9.8% year-on-year but net profit falling by 7.6% year-on-year.
The profit decline was due to increased expenses relating to the consolidation of entities Ground Team Red.
On the flip side, operational metrics for the first half of fiscal 2020, except for cargo handled, had improved. The group declared an interim dividend of S$0.06 per share which adds up to a trailing 12-month dividend of S$0.19 per share.
At SATS’s last traded price of S$5.06, shares offer a dividend yield of around 3.8%.
4. Venture Corporation Limited (SGX: V03)
Venture Corporation is an electronic services provider founded in 1989.
Today, the company a leading global provider of technology products, services and solutions. Its capabilities include design and development, process engineering and supply chain.
The group has clusters in Northeast and Southeast Asia, America and Europe which employ around 12,000 employees.
Over the past few years, demand for contract manufacturing and electronics has increased due to the emergence of new technologies such as artificial intelligence and the Internet of Things.
Venture Corporation, as an established player in the industry, has profited alongside. Looking ahead, the group is optimistic about gaining traction with its entries into new technology domains and ecosystems.
The group pays a twice-yearly dividend amounting to S$0.70 in total over the last 12 months. At its last traded price of S$16.13, shares offer a trailing dividend yield of around 4.3%.
5. Hongkong Land Holdings Limited (SGX: H78)
Hongkong Land is a major property development, investment and management group founded in 1889.
The group owns more than 850,000 square metres of prime office and luxury retail property in key Asian cities such as Hong Kong, Singapore, Beijing and Jakarta.
Hongkong Land’s assets are prime commercial properties located in the heart of Hong Kong. The group also owns around 165,000 square metres of prime office space in Singapore held through joint ventures, and its subsidiary MCL Land is a well-established residential property developer.
The recent riots and protests in Hong Kong have dented confidence in the city’s prospects, as the country faces its first recession since the Global Financial Crisis.
The riots broke out in June 2019 and the group’s share price has since tumbled around 15% to around USD 5.69. Hongkong Land pays a steady interim dividend of US$0.06 and for FY 2018, it also paid out a final dividend of US$0.16, bringing full-year 2018 dividend to US$0.22.
At the moment, the shares offer a dividend yield of around 3.9% underpinned by quality assets within the group’s portfolio.
6. Singapore Technologies Engineering Limited (SGX: S63)
ST Engineering is a conglomerate that has four key divisions: aerospace, electronics, land systems and marine.
The group employs about 22,000 people which serves customers in the defence, government and commercial sectors in more than 100 countries.
For the first nine months of 2019, revenue jumped by 13% year-on-year to S$5.6 billion, while net profit attributable to shareholders increased by 10% year-on-year to S$408.4 million.
The results were boosted by ST Engineering’s recent acquisition of MRAS in April 2019, and the group had also undertaken two acquisitions in recent months for Glowlink Communications (September 2019) and Newtec Group (October 2019).
Glowlink was purchased for US$20 million and provides innovative solutions that improve the quality of satellite communications. The acquisition acts as a complementary fit to its electronics division’s high-growth satellite communication business.
Newtec is also in the satellite communications business and will boost the Electronics division’s capabilities further.
ST Engineering has been paying a consistent S$0.15 annual dividend for the last five financial years. Shares offer a dividend yield of around 3.8% at the last traded price of S$3.93.
Given its recent developments, the group may be well-positioned to maintain or even increase its dividend in time to come.
Get Smart: It’s about the returns you want …
The higher yields may give the impression that the CPF OA rate itself is not a high hurdle to cross, but it’s important to remember that we need to assess the risks and potential pitfalls of each investment as well.
Observing the company’s dividend yield is merely one aspect of an all-rounded investment thesis.
If a person simply left his CPF OA account balance alone, it would earn an almost risk-free interest rate of 2.5%. In addition, the capital is protected by Singapore’s government.
That said, the 2.5% interest rate may fall short of inflation, which may average from 3% to 4% each year.
In short, it goes back to what returns you are seeking, and the risks you are willing to take to get it.
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None of the information in this article can be constituted as financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. Disclosure: Royston Yang owns shares of SATS and Singapore Exchange.