Dividend trend shows strength of S'pore companies

A LOT of conversations out there nowadays are about how terrible the stock market is - followed by, say, "I'll buy Keppel Corp (which has fallen some 50 per cent from its April high) and leave it for my children". Others moan how they must "cut off their fingers", which is a Cantonese saying translating roughly to "never venture into stocks or mahjong" - which kind of indicates how investment is perceived by some.

That kind of talk is more likely to come from the older generation. But you would have thought they would be more resilient, having gone through previous bear markets, like the 2008/9 global financial crisis - and the more terrible 1997/8 Asian financial crisis, which saw the value of many properties crash 50 per cent and the Straits Times Index (STI) fall below 1,000.

Putting the situation into perspective last month was OCBC's chief executive Samuel Tsien in an interview with the Singapore Exchange (SGX). Referring to non-performing loans (NPLs) - which are in focus given the slowdown in regional economies, lower demand from China and higher interest rates - he said: "We need to put this into the right context. NPLs have been extremely low by any standards. So even if they were to rise, we need not panic as they are, in a way, normalising, and this is not unexpected. Nonetheless, I don't expect NPLs to increase to a level of grave concern."

The group had an NPL ratio of 0.9 per cent at the end of the September quarter, matching that of DBS Group Holdings and compared with 1.3 per cent for United Overseas Bank (UOB).

NPLs are unlikely to hit levels seen during the global financial crisis - which means they would be much better than they were during the Asian financial crisis, Mr Tsien said. OCBC's NPLs reached 1.7 per cent in 2009 - much lower than the 13-14 per cent in 1999-2000 in the aftermath of the Asian financial crisis.

Mr Tsien said the bank's customers have stronger fundamentals now, which will help them through a downcycle. In addition, central banks are active in ensuring sound domestic banking systems and also coordinating with one another to ensure that the country, region and economic bloc are able to withstand shocks.

He is, of course, talking about the banking system and ability to withstand a downcycle. Still, stockmarket investors could take some cues.

Individual counters may collapse - but have overall fundamentals changed that much?

Companies may struggle to show revenue growth in the current situation - but that's not the same thing as getting into trouble, unless they are overleveraged.

It may be counterintuitive but several companies are actually paying higher dividends, which should denote underlying strength. This trend of paying higher dividends is seen in the distribution by the STI ETF, the exchange-traded fund that aims to generate returns corresponding to the performance of the STI.

Earlier this week, State Street Global Advisors Singapore Ltd, manager of the STI ETF, announced the fund's dividend distribution of S$0.051 per unit - higher than the previous interim of S$0.048 per unit. Last August, the final dividend announced was S$0.049 - more than the previous corresponding S$0.045.

Distributions of the STI ETF are contingent on dividends paid on index shares, said David Chai, head of global equity beta solutions, Asia ex-Japan, at State Street Global Advisors.

The ability of the fund to pay distributions on the units is dependent on the dividends declared and paid by the companies whose shares are held by the fund, and the level of fees and expenses payable by the fund, said Mr Chai.

"We observed that the dividend payout ratios and dividend yields of the STI have been rising in the past two years, which has been a contributing factor to the increasing dividends at the fund level," he said.

"While we do not forecast on the trend of dividend payouts, generally speaking, higher dividend payout may be led by companies which tend to return more cash to investors or they just lack good opportunities in the near term to reinvest their cash.

"Future dividend payouts will be subject to various factors," Mr Chai added.