Dividend, anyone?

No surprising, there are not many news or article discussing about dividend stocks anymore nowadays.

Instead of focusing on dividend when the market hit the multiple years low on March 2009, the market player is looking at growth story to park their fund now.

With the market uptrend pretty intact since March 2009, there are plenty of solid blue chip stock which offer low volatility, stable dividend and yet steady up rising of share price.

Look at this 7 carefully selected ST index component stocks. The panic buying or selling of market through out the last 7 months seems not exist. I think this is suitable for those longer term investor with weak heart, no free time to actively monitoring the market and the best: DON'T MISS OUT THE MARKET RALLY!








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Parkway, RMG shareholders focus on dividends

Former worried about its sizeable debt; latter ask for higher payout

By CHEN HUIFEN

DIVIDENDS were a common concern for shareholders at the annual general meetings (AGMs) of Parkway Holdings and Raffles Medical Group yesterday.

Shareholders of Parkway, which held its AGM and EGM at Gleneagles Hospital, are worried that the group's substantial debt could eat into its cash, leaving a smaller pool for distribution.

'They were concerned about the debt - how we are going to service that - because the more interest you pay, of course, the less dividend you give them,' group president and CEO Lim Cheok Peng told BT after the meeting. 'Obviously, this is something we have to be mindful of.'

Parkway's total dividend payout of 3.21 cents a share for FY2008 is significantly lower than 24.5 cents, including special dividend, in FY2007 and the three years before that.

According to its annual report, the group had net debt of $681 million and a net debt-to-equity ratio of 0.53 at end-December. Repayment of bank loans came to $5.8 million last year, while interest paid rose to $39.6 million, from $21.8 million in FY2007.

'In the course of business, of course there will be some debt, but we'll try to see how we can modify that and improve the situation,' Dr Lim said.

In an update on the flow of foreign patients, he said the numbers have remained stable since Q4 last year. 'We thought it could have been worse, after having slipped about 10 per cent in the last quarter. But I believe that at this present time it has sort of plateaued out. We are not dropping further, so that's a good sign. But we don't know what the second quarter is going to be.'
Another positive sign is a solid increase in local patients. Outpatient and day-surgery cases have grown by double-digits, but Dr Lim hesitates to say this increase will make up for flat foreign patient numbers.

None of the more than 100 shareholders present asked about the impending departure of COO Daniel Snyder, whose contract expires in June. Dr Lim said no decision has been made on whether the post will be filled or an internal reshuffle will be carried out.

Over at Raffles Medical, shareholders tried to coax management to raise the dividend payout, which remained flat at 2.5 cents a share for FY2008.

Minority shareholder Albert Chia said a good showing last year meant that the hospital is 'in good time', while 'we (individual shareholders) are in bad time'.

Much to the laughter of the crowd, he said that except for David Lawrence, who is stepping down as independent director, many board members still have black hair, while his own is turning grey and thinning. He suggested that vitamins D and E be included as door gifts, on top of the vitamin C tablets given out, since most of the AGM attendants are senior citizens and it looks like vitamin M (more money) is impossible to obtain.

'I thought today there won't be a lot of shareholders (turning up), because we need vitamin C, D and E to walk here,' he joked.

Executive chairman Loo Choon Yong took the cajoling in good faith and explained that the group needs about $20 million of cash for working capital needs and opportunities.

'We can't be going to the bank in the middle of the night,' said Dr Loo. 'And we also do not want to keep so much cash that we are not efficient in the deployment of capital. So you have my assurance that it's not my intention to have a big cash box. We need a small war chest, and then extra earnings that we will continue to make, we would like to pay out to the shareholders.'
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S'pore dividend yields seen falling this year

Analysts expect cuts amid pressure on corporate earnings
By OH BOON PING
Published March 23, 2009

LAST year's dividend yields among many Singapore stocks rose to their highest levels in five years due to the plunge in stock prices - but analysts expect yields to come down this year.

The increase was broad-based, with almost all of the 30 stocks in the Straits Times Index reporting sharply higher yields in FY08 based on the last traded prices for their fiscal years.

For example, Neptune Orient Lines (NOL)'s dividend yield was 12.5 per cent, up sharply from 2.05 per cent in 2007 and 1.91 per cent in 2006, while Sembcorp Industries yielded 6.47 per cent, versus 2.22 per cent a year earlier.

Singapore Airlines returned 8.88 per cent, compared with 3.17 per cent previously, while CapitaMall Trust delivered 8.09 per cent - up from 4.11 per cent in FY07 and 3.51 per cent in FY06.

The picture is similar for non-index stocks. For example, most mid-caps raised their dividend yields.

Guocoland yielded 7.02 per cent in 2008, up from 3.09 per cent in FY06 and 1.42 per cent in 2007. And Hotel Properties yielded 4.46 per cent, up from 0.61 per cent in 2007 and 0.93 per cent in 2006.

The spike in yields came about mainly because of the plunge in stock prices, as equity markets were hammered by the financial and economic slowdown.

Last Friday, the Straits Times Index closed at 1,596.92 points - down from 2,824.91 points a year ago.

But yields are likely to be pared this year as companies cut back on cash payouts amid uncertain economic conditions.

For example, DMG reckons 77 per cent of the stocks that it covers will post lower yields, falling from an average of 6.6 per cent in 2008 to 5.4 per cent this year.

OCBC Investment Research (OIR) head Carmen Lee reckons that companies will seek to preserve cash 'as visibility on a credit thaw and the final verdict on global financial institutions have yet to crystallise'. OIR had earlier forecast an average yield of 7 per cent for STI component socks.

Also, scrip dividend programmes may become more common as companies use them to shore up cash, said Terence Wong of DMG & Partners. Stocks that have already done so include OCBC, Midas, Raffles Education and Keppel Land.

The less-than-rosy forecast came as a number of high-yielding stocks slashed payouts last year. 'ComfortDelgro, for example, only dished out 52 per cent of its earnings - a far cry from the 80-plus per cent payout in previous years. Others, like Keppel Corp, SembCorp Industries and SembCorp Marine, have also reduced their distribution to shareholders.'

DMG believes that dividend payout ratios this year will be similar to those in 2008 across most industries, given that many companies cut them last year. But 'what will take the wind out of the yields will be declining earnings per share, as we expect the market to fall some 14 per cent'.

Sectors that will see severe cuts in yields include real estate investment trusts (Reits) and finance, it says. By DMG's estimates, yields on Reits could fall 3.4 percentage points, while finance sector returns could drop 2.9 percentage points.

For the banks, DMG expects DBS to slash its dividend payout from 64 per cent last year. Accordingly, dividend yield is forecast to drop to 3.9 per cent from 9 per cent.



The yield on OCBC may drop from 6.6 per cent to 4.2 per cent, while UOB may slash its payout to give a yield of 5.4 per cent, down from 6.6 per cent.

As for Reits, the research house does not rule out the possibility of 'downside pressures to DPU in the near-term'.

'As such, we recommend investors to buy into the big-cap Reits, for example, A-Reit and CMT, as a considerable amount of their FY09 distributable income has already been locked in.'

Other sectors that will see weaker yields include multi-industry (minus 1.7 percentage points), offshore and marine (minus 0.9 percentage points) and healthcare (minus 0.4 percentage points).

OCBC thinks cyclical sectors such as property, commodities, tech and, oil and gas may have difficulty maintaining payouts, as cash flow will be affected if earnings fail to hold up.

The research house recommends investing in blue chips 'as these have largely maintained the stance of paying dividends as long as cash flow is strong and if cash is not required for major acquisitions'. Read more!

Dividend-rich story is waning

Published February 27, 2009
Dividend-rich story is waning
By JAMIE LEE

IT MAY be a nag but a mother's reminder of 'safety first' to her kids is pretty good advice.

And in such uncertain times, people are turning maternal. They are looking for investments that they can nestle into and sleep soundly over.

Ordinarily, this would refer to dividend-rich stocks such as those in the banking, oil and gas, and the telecommunications sectors.

Which explains why several blue chips tend to find favour among analysts. Besides the assumption that shareholders are buying into an established and stable business, the stocks yield attractive dividends for shareholders.

This is despite (or a consequence of) them typically being more expensive in dollar terms compared with other stocks on the market.

But the dividend-rich story that some analysts still keep up is waning.

Oil and gas kingpin Keppel Corporation slashed its dividend payout ratio last month to 51 per cent from 99 per cent a year ago, despite posting a slight 3 per cent dip in full-year net profit to about $1.1 billion.

And while competitor Sembcorp Marine is prepared to push out a dividend of 11 cents per share for the full year, 26 per cent higher than the 8.73 cents paid in 2007, the company has noted that the dividend policy is not cast in stone. This signals that future dividends for the company could be shaved to explore mergers and acquisitions (M&A) opportunities or as a precaution against the credit crunch, as banks turn coy on lending.
Over in the US, JPMorgan Chase became the latest bank to cut dividend payout. It lopped dividend payout by 87 per cent to five US cents per share from 38 US cents, saving US$5 billion in capital per year from the reduction, reported Bloomberg. This is despite the bank expecting a profit in the first quarter in 2009 that is aligned with analysts' estimates.

Banks at home - which are assumed to be stronger than their Western counterparts - have maintained their payouts so far. But OCBC has plans to introduce a scrip dividend scheme that allows shareholders to receive the latest dividend in the form of shares instead of cash, which is seen as a means to conserve capital.

Even the real estate investment trusts (Reits) sector, which rests on a stable income distribution as its selling point, is not as resilient as some analysts make them out to be.

Saizen Reit yanked distribution payout for its fiscal second quarter and has proposed a scrip-only dividend scheme, under which it would pay dividends in the form of Reit units instead of cash.

CDL Hospitality Trusts also said that it would distribute 90 per cent of its taxable income - the minimum amount of distribution - for the second-half 2008, compared with off-loading 100 per cent of its taxable income. This would save the company about $4 million.

Analysts say that the 'scrip-only' scheme and other dividend reinvestments schemes are being mulled by other Reits as well to hoard cash. This is especially as the situation of debt maturity appears 'more acute' here compared to other Reits in the region, said DBS Vickers Securities in a recent report, with about $3.2 billion or 24 per cent of the total sector indebtedness being due for refinancing this year.

The bottom line is that stocks that paid out generous dividends in past may not necessary do so now.

Measures to crimp dividend payouts are understandable. While there is little doubt that shareholders will lose out in the short term, it would be unwise for companies to pay out cash, or worse, to borrow (at much higher costs now) and risk future operations by weakening its cash position.

But this means that stocks that were once lauded as safe, resilient or defensive based simply on their dividend yields, may no longer be seen as such.
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Is the cash really there?

Some companies are sitting on a huge pile of cash, but there's still no sign of dividends
By TEH HOOI LING
SENIOR CORRESPONDENT

BASED on its latest available financial statements, that would be for the quarter ended Sept 30, 2008, C&G Industrial had a cash balance net of debts of about 408 million yuan. That worked out to cash per share of 0.87 yuan, or about 19.4 cents. As of yesterday, the manufacturer and distributor of PET chips and yarn products for the textile industry in China last changed hands at 8 cents a share.

Meanwhile, China's largest nylon manufacturer Li Heng's cash net of debts per share worked out to 23.6 cents. The shares last traded at 20.5 cents.

China Paper, which manufactures and distributes mixed-pulp based paper products to over 320 publishing houses, printing companies and other paper distributors throughout China, had 18.5 cents cash and no debts on its balance sheet as at end September 2008. Its share price, as of last Friday, was 16.5 cents.

At least in the former two companies, business prospects have taken a turn for the worse. Both have issued profit warnings. But for China Paper, its business seems to be still holding up well, based on its last financial reports.
Is the market being irrational? Well, maybe, maybe not!

As a head of research from a local broking firm quipped when asked to comment on the seemingly bottomless pit that China stocks are sinking into: 'All didn't do well in the results so far. Some are sitting on such embarrassing amount of cash, but there's still no sight of dividends for some. This raises the question: 'Is the cash really really there?' The Satyam Syndrome can be deadly if not treated early!'

Well even if the cash is there, if shareholders can only see and not touch, and worse still if investors can only watch while management fritter away the cash in unwise investments, then there are ample reasons for investors to place a discount on the cash.

Take the case of AEI Corporation. The manufacturer and trader of aluminium extrusion sections, metal materials and other related products, which was listed on the main board of Singapore Exchange in 2004, has been in a cash flow positive business. As at June 30, 2008, it had cash of $26.8 million, and no debts. That's down slightly from $28.5 million cash in the beginning of the year. The cash worked out to be about 10 cents per share.

Seeing such a clean balance sheet, and a business that, albeit small, was generating positive cash flow, some value investors no doubt would have been tempted to buy the stock. And to be fair, the company did pay out dividend of about one cent a share every year since it was listed in 2004. One cent, on its initial public offering price of 28 cents, worked out to a dividend yield of 3.6 per cent a year.

With over 200 million shares outstanding and a dividend payout of one cent a share, the total payout amounted to over $2 million a year. According to the group's cash flow statements, it generated cash of $10 million from its operations in 2007 and $3.5 million in 2006.

But the unfortunate part is how the management had decided to do with the cash that it had opted to retain.

In June 20, 2007, AEI granted Hoi Po Metal Manufacturing a convertible loan sum of HK$20.49 million ($4 million). Hoi Po owns Dongguan Gaobao Aluminium Mfy. Co and Dongguan Gaobao Aluminium Melting & Casting Mfy. Co. The former is engaged in the design, manufacture and sale of aluminium products and the latter in the melting and casting of aluminium products.

The proceeds of the convertible loan are for Hoi Po to acquire plant and machinery and its other working capital purposes.

The aim of granting the convertible loan is so that AEI, at its option, can acquire an equity stake in Hoi Po. That investment, according to AEI, would allow it to access Hoi Po's product design, mould making and extrusion technology. This would provide it a lower cost platform to expand its own production capacity. The rationale made sense.

Nine months after the convertible loan agreement, AEI announced that instead of converting the loan into shares in the capital of Hoi Po, it had on March 26, 2008, entered into a non-binding memorandum of understanding with Hoi Po to set up a joint venture company to manufacture and sell aluminium products in China. The joint venture company, however, would buy over the assets of Hoi Po's two subsidiaries. The assets, however, were mostly mortgaged to various financial institutions in Hong Kong and in China.

Two weeks ago, AEI announced that the global financial crisis had affected the proposed joint venture's business prospects. And because its offer to purchase the assets for the joint venture from the Hong Kong and China financiers at a discounted rate were unsuccessful, it has decided not to proceed with the joint venture.

It is now rigorously pursuing its claims against Hoi Po to repay the convertible loan of about $4.04 million. Until the amount is recovered, AEI said it has provided for impairment of the total outstanding convertible amount in the year ended Dec 31, 2008.

Ok, as mentioned, the initial rationale for making the convertible loan made sense. The current financial crisis was not anticipated. So it is indeed excusable that the deal didn't work out as planned. And the benefit of the doubt is given to the management for having done the proper due diligence before making that $4 million convertible loan.

But the second investment done by AEI is more perplexing. In July 2008, AEI said it had entered into another convertible loan agreement, this time with M2B World Asia Pacific.

The loan amount was US$2.5 million, from July 8, 2008 until July 7, 2010. And M2B is an Internet TV operator whose business model was unproven and which had yet to make any sustainably decent profits.

What's an aluminium extrusion company investing in an Internet TV operator? And worse still, M2B was actually to be injected into Auston in a reverse takeover deal. After evaluating the deal, the Singapore Exchange rejected the proposal of the reverse takeover in January 2008, presumably because SGX didn't think the M2B business model was viable.

So what's AEI doing extending a convertible loan to M2B after it was denied entry into the Singapore bourse by SGX?

AEI said the convertible loan, should it decide to convert, would 'allow it to diversify its investment portfolio and give it an opportunity to participate in the growing new media broadband industry'. Furthermore, the convertible loan would provide it an enhanced yield of 5 per cent per year, it added.

As of today, it is not known how M2B World Asia Pacific is doing. But in an environment where even the most established of businesses are struggling, it in inconceivable that one with an unproven business model can do well.

So given the management's rather questionable decisions, it is no wonder that AEI is trading at 6 cents compared with its cash per share of 10 cents a share.

But even for big companies with a large cash pile that we know with a great degree of certainty is there, there is no guarantee that the management will not try to be too clever with the management of their cash pile.

A case in point is Venture Corp. This week, the contract manufacturer reported an applaudable set of results. Adjusted for one-off items, net profit for the whole year registered a decline of 10 per cent to $280 million, not a bad performance at all when compared to the dismal results of its peers.

The drag - its fourth quarter net profit declined 94 per cent to $5 million - was due to an additional provision of $58 million for impairment in collaterised debt obligations (CDOs) that it bought in 2004.

Venture had bought CDOs in 2004 to improve returns on its cash pile. The CDOs held by Venture were worth about $209 million in late August last year. The current value, as at end December, was $18.8 million.

What business does an electronics manufacturer have investing in derivatives? The consolation is Venture has been managing its core business well, and has been pretty generous in distributing its cash as dividends as well. It declared a 50 cents dividend, or 12 per cent yield compared to its recently traded share price. And it's been doing that for the past four years. Which is why investors were cheering it yesterday, sending the stock 7.3 per cent higher despite a totally depressing day in the stock market. We're sure Venture has learnt its lesson.
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Worst quarter for dividends in 52 years

(NEW YORK) As if slumping stock prices weren't bad enough, investors had to swallow stingier payouts in the worst quarter for dividends since 1956, Standard & Poor's said on Wednesday.

The number of US companies that cut dividends rose by more than five-fold in the final quarter of 2008 while the number of companies raising their payouts fell by 40 per cent, according to the Standard & Poor's Dividend Record.

And an S&P senior analyst warned that the worst has yet to be seen.

S&P said that of the nearly 7,000 public companies that report dividend information to its Dividend Record, 288 decreased their dividend, up from the 52 issues that did so during the fourth quarter of 2007, while 475 companies increased their dividend compared with 792 a year earlier.

Forty-seven companies in the S&P 500 slashed payouts by a total of US$40.6 billion as dividend payments for the whole index fell 6.1 per cent from a year earlier.

Among them was Citigroup, the embattled No. 2 US bank, which cut its dividend to a penny per share from 16 cents in exchange for a US government-sponsored bailout in late November.
'Due to the timing of the cuts many issues actually paid in the fourth quarter, so the full impact of the cuts won't be felt until the first quarter of 2009,' said Howard Silverblatt, senior index analyst at S&P.

'Dividend increases continued to fall, and given the heightened uncertainty and change in spending habits, companies will be wary of any increases,' he added.

The total number of positive dividend actions in 2008 was 1,874, the lowest since the 1,756 recorded in 2002. -- Reuters
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Lower Dividends in 2009

Lower dividends on the cards as earnings wither

Published January 2, 2009
By LYNETTE KHOO
Businesstimes.com

Lower dividends on the cards as earnings wither
But blue chip companies likely to maintain payout ratios

(SINGAPORE) Investors could receive lower dividend payouts in absolute dollar terms this year as corporate earnings wither under the heat of the recession.

Still, investors can take heart that yields will still remain at attractively high levels, given the low valuations and the fact that most companies are not planning to cut their dividend payout ratios yet.

Not all companies have fixed their dividend policies but the blue chip firms that BT spoke to say they are likely to maintain the status quo.

'We will continue to reward our shareholders with dividends as long as free cashflow is not required for acquisitions and strategic investments,' said a ST Engineering spokesperson. The group paid out 100 per cent of its net earnings as dividends for the fifth year during fiscal 2007.

Keppel Corp spokesperson told BT that the group aims to distribute around 50-60 per cent of its full year Patmi (profit after tax and minority interest) annually as dividends to shareholders.

Agricultural commodities supplier Olam International has a dividend payout policy of 25 per cent of NPAT (net profit after tax) and says it does not expect any significant changes to its policy as it expects to meet its earnings target for fiscal 2009.
'Given that our business fundamentals are quite strong and our belief that agricultural commodity sector remains attractive due to structural reasons, we expect to deliver long-term shareholder value,' said an Olam spokesperson.

Analysts note that thanks to their strong cash positions, most blue chips still have the staying power to stick to their dividend payout policies.

'The good dividend-paying sectors have always been the banks, the offshore marine sector and the telcos and in these sectors, I think the ability to pay is still there,' CIMB-GK research head Kenneth Ng said.

He noted that earnings of banks may fall this year, but not to the extent that it would jeopardise dividend payouts. In fact, during the Asian financial crisis, the banks maintained their dividends, he recalled.

OCBC head of corporate communications Koh Ching Ching told BT that the bank maintains a minimum dividend payout of 45 per cent of its core earnings. For fiscal 2007, OCBC paid out 28 cents per share or 46 per cent of its core earnings as dividends.

While companies that will maintain their payout ratios stand to earn kudos, the harsh operating climate has prompted the market to already price in the prospect of lower dividends on the back of weaker earnings expectations.

JPMorgan analyst Christopher Gee noted that valuation models imply that Singapore stock dividends will drop 20 per cent in the next year or fall by 2.2 per cent per annum over the next 10 years.

He believes stocks in the financial sector - both banks and real estate stocks and notably the S-Reits - are the most likely to lower their dividend ratios due to weaker earnings or equity dilution from refinancing exercises.

'Stocks in cyclical sectors with fixed payout ratios are also likely to see reduced dividends, with SIA and the commodity-related names the most likely to reduce dividend payouts in our view,' Mr Gee said in a recent report.

Some companies may choose to reduce their dividend payouts to conserve cash in a difficult year or seek M&A opportunities, Mr Ng of CIMB-GK added. This is especially so given that many companies' share prices are beaten down, and can still offer a high yield despite a lower dividend payout.

While recent concerns about debt refinancing and recapitalisation needs have sent prices of S-Reits south, some S-Reit managers told BT they are keeping to a 100 per cent distribution payout, above the 90 per cent minimum required under regulatory guidelines. Some Reits have also secured their refinancing needs for this year.

'For 2009, Parkway Life Reit intends to continue to maintain its distribution payout at 100 per cent,' said Yong Yean Chau, acting CEO and CFO of Parkway Life Reit.

He added that Parkway Life Reit has secured all its financing needs by replacing short-term credit facilities with longer-term facilities and has locked in long-term master leases for its properties.

Suntec Reit chief executive Yeo See Kiat said the Reit's next refinancing will not be due before December 2009 and he does not expect to see a major fluctuation in distribution payout.

Analysts suggest that some companies may vary their payout ratios to maintain their absolute dividend sums.

JPMorgan's Mr Gee is expecting payout ratios of Singapore companies to rise to 58 per cent in fiscal 2009, up from an average payout ratio of 53 per cent between 2000 and 2007. This will translate to a yield of 6.59 per cent.

For fiscal 2008, which has just ended, StarHub has committed to paying an absolute dividend sum of 18 cents per share, up from 16 cents in fiscal 2007, while SingTel and Mobile- One said they might review their payout ratios.

'Unlike other companies, we do not have a payout ratio for our dividend - it has always been on absolute level,' a StarHub spokeswoman told BT. 'We are a free cashflow-focused company. We don't believe in paying dividends based out of our earnings.'

A Singapore Exchange (SGX) spokesperson said the company aims to pay dividends no less than either 80 per cent of the annual NPAT or 14 cents per share, whichever is higher. It paid total dividends of 38 cents per share for the fiscal year ended June 30.

Investors may also find some comfort in the projections by Morgan Stanley analysts - that dividend cuts will be much smaller than earnings declines. This was what happened during the Asian financial crisis of 1997/98, when Asia-Pacific (ex-Japan) EPS fell 73 per cent peak-to-trough, but dividends per share declined by just 20 per cent.

The concerns notwithstanding, these analysts suggest that for long term investors, a wide gap between dividend yields and bond yields should serve as a 'strong buy' signal for dividend-yielding stocks.

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