Equity Strategy Report: Is it time to look at dividends?

Serving up sweeteners in the form of better final and special dividends

As the results season for companies with a December financial year-end came to an end, it is interesting to note that several companies have either increased their final dividend payouts and/or thrown in sweeteners in the form of unexpected special dividends. In a challenging environment, especially in view of rising costs and the heightened possibility of slower revenues and profits, this unexpected sweetener is a welcome move for long-term investors, especially from some of the big-cap companies.

Low predictability to dividend per share trends

While dividend trends can be highly unpredictable and can fluctuate widely depending on market conditions and companies’ performance, dividend payouts by big-cap companies tend to be more stable and at times on an upwards sloping trajectory.

While corporate earnings growth globally could come under some pressure due to the softer outlook in 2023, this situation is slightly different in Singapore. Earnings per share is projected to grow 20.9% based on the latest consensus estimates from Bloomberg. This is largely explained by the composition of the Singapore market, which has a larger component of listed companies with stable earnings stream. In addition, the tailwind is likely to come from the opening up of the Chinese economy which will benefit Singapore, especially in the 2H23. In addition, most Singapore companies are not highly geared, especially after the experiences from the Asian Financial Crisis and the Global Financial Crisis. We believe that the big-cap or more matured companies are in a much stronger position than small-cap companies in FY2023.

Look at other growth factors beyond 2023

While high interest rates and elevated inflation will remain in focus in 2023, investors should adopt a longer-term investment horizon and look at other growth factors beyond 2023. Current weak market sentiment is an opportune time to accumulate quality names with consistent good dividend yields, especially on price weaknesses. For the STI, valuations are not expensive in terms of both price-to-earnings or price-to-book ratios based on current level. In addition, with the recent sweetener of higher dividend payouts by several blue-chip companies, the overall average dividend yield for FY23 is estimated at an attractive level of 5.0%.

This article was first published by Bank of Singapore on March 13, 2023. The Opinions expressed in this publication are those of the authors. They do not purport to reflect the opinions or views of Bank OCBC NISP Private Banking Tbk. or its affiliates.

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