In this post, I will illustrate my thoughts and analysis process whether SGX is a great Singapore dividend stock to own.
To do this, I reference back to the 5-step stock investment framework. For simplicity, I only mention below the key points.
- Step 1 Stock Screening – SGX provides listing, trading, settlement, depository and data services and current market capitalisation is quite high at S$7.85B, it is a component stock of the STI Index. It also has a great reputation not just in Singapore but also the region. While some of the financial instruments carried through SGX may be quite complex, generally I am comfortable understanding its core business as a capital raising exchange. This would be a business not totally outside my circle of competence.
- Step 2 Fundamental Analysis – I will next perform the fundamental analysis by looking at a number of financial metrics. But prior to that, we explore the aspect of economic moat. SGX is almost like a monopoly though it does have to compete with other exchanges, particular in the region like Hong Kong and Australia. EPS has been stable over the last 10 years and growing slightly over the last 3 years. SGX also has zero debt. This is a very fundamentally solid company.
- Step 3 Valuation – As of this writing, the stock price is $7.32 and the PE ratio is 22.52. For a very stable company but not growing fast, PE ratio of this level seems high. But this has been its PE ratio level for a long time. The market has given it a high valuation probably because of the strong economic moat. Dividends have been stable at $0.28 and while the dividend payout ratio is high at about 90%, it is probably going to be sustainable. At $7.32, the dividend rate is 3.82%. I would usually target closer to 5% but for a relatively “safe” investment, this is not bad at all compared to the current “risk-free” interest rates available.
- Step 4 Market Entry – Seems I am happy to go in from Step 3. Stock prices move up and down. I would leverage on technical analysis to go in at selected support levels.
- Step 5 Market Exit – For this counter, after I have made the decision to buy, I would probably hold for the dividends till if the stock price becomes too high or if I can use the capital elsewhere to generate better returns.
I love dividend stocks for the regular income which I can collect fairly passively. Dividends when re-invested further compound your money over time. Do also read my article 5 Dividend Stocks I Would Like to Own.
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As a bonus, below a video on SGX Stock Facts presented by Sean Seah, the founder of Value Investing College. It is a wonderful place to do stock screening for Singapore stocks.
At Journey With Money, we are practitioners of Value Investing for Singapore and US stocks. We are passionate about sharing our Stock Investment knowledge and experience but the materials we present do not constitute stock recommendations and readers are urged to do their own due diligence for any investment decisions.
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