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Singapore dividends to drop: study

2017 total will fall 3.6% as stalwarts such as StarHub, SPH and Keppel disappoint

Singapore dividends are in for another tough year to the dismay of the legions of retiree investors; they also take some shine off the bull run in which the Straits Times Index has risen some 12 per cent since January.


SINGAPORE dividends are in for another tough year to the dismay of the legions of retiree investors; they also take some shine off the bull run in which the Straits Times Index has risen some 12 per cent since January.

Aggregate dividends (ordinary plus special) in 2017 will fall 3.6 per cent year on year (yoy) to S$16 billion from S$16.6 billion reported a year ago, said financial data provider IHS Markit.

falling dividends

This will be the second straight year that single-digit negative growth is reported.

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Disappointing income huggers are dividend stalwarts such as StarHub, SPH and Keppel Corp. Picking up some of the slack with higher payout would be, among others, DBS and property stocks such as CapitaLand, CapitaLand Commercial Trust and Ascendas Real Estate Investment Trust.

Excluding special dividends, ordinary dividends from companies in FTSE STI and MSCI Singapore are projected to be down 2.5 per cent yoy to S$15.9 billion, compared to 0.6 per cent growth in 2016.

IHS Markit covers 31 stocks from FTSE STI and MSCI Singapore. Projected dividends selected for each year are based on the dividend announcement date, so 2017 total dividends for a stock may consist of FY16 final dividend and FY17 interim dividend.

Special dividends are forecast to be down about 56 per cent yoy to S$120.8 million as Singapore Technologies Engineering opts to stick to ordinary dividend payments. The company gradually reduced yearly paid special dividends to S$155.2 million (five cents per share) last year and plans to distribute specials only when there are one-off events in future.

This leaves the number of companies that pay special dividends to two - City Developments and SPH.

Not so long ago, seven companies paid out special dividends in 2012 and 2014. But the highest special payouts in the past six years was by five companies totalling over S$1 billion in 2013, which included a bumper S$401.1 million from SPH as it listed SPH Reit.

City Developments announced two special dividends in 2017 - four cents in February and four cents in August.

"We are expecting SPH to declare a flat amount of three cents in October," said Hyeyoung Jo, IHS Markit research & analysis manager, dividend forecasting.

She also expects the final dividend to fall to six cents from eight cents. SPH is scheduled to report full year results on Oct 11. SPH declared in April an interim dividend of six cents, down from seven cents a year ago.

IHS Markit is also projecting ordinary dividends from SPH to be down 20 per cent yoy from S$239.8 million to S$192 million, added Ms Jo.

"There is a further downside risk in upcoming dividends as receding media revenue growth continues to impact the group earnings. The company's cash flow and cash equivalents have been downwards, putting additional pressure on dividend growth," said Ms Jo.

Also slashing dividends is StarHub, causing the telco sector to post a cut in aggregate dividends for the first time in five years. This is due to a dividend policy revision, effective FY17. StarHub's net profit and free cash flow in recent years have been weighed down by intensified market competition and the company decided to downgrade its annual dividend per share by 20 per cent to 16 cents from 20 cents which it had maintained since FY10.

In 2017, StarHub's total dividends are forecast to be down 15.2 per cent at S$293.8 million and the sector's total dividends are expected to fall 0.5 per cent.

Banks and telcos continue to dominate 2017 ordinary dividends, respectively accounting for 26.9 per cent and 19.8 per cent of total dividends expected for the year. Banks' dividends are set to rise 3.5 per cent, against a drop of 4.1 per cent in 2016 (minus 12.3 per cent including specials), which was primarily impacted by United Overseas Bank's policy change to keep an equal split between interim and final dividends.

This year, UOB and OCBC have declared flat dividends from the previous year while DBS decided to pay out 10 per cent higher interim dividend. Since UOB omitted special dividends in 2016, aggregate dividends from DBS surpassed its two local peers and the bank alone takes up around 10 per cent of the total dividends expected from Singapore in 2017.

Dividends from two oil and gas companies, Keppel Corp and Sembcorp Industries, have been lacklustre and the sector is projected to report the biggest cut compared to other sectors in 2017. The sector has declared 32.4 per cent lower dividends in 2017 following a 37.5 per cent decrease in the previous year.

Besides DBS, other dividend stars come from real estate. The real estate sector is projected to deliver dividend growth of 8 per cent yoy.

Six out of the nine companies in the sector are forecast to maintain flattish dividend per share (DPS) in 2017 compared to the previous year while CapitaLand Commercial Trust (CCT), CapitaLand and Ascendas Real Estate (A-Reit) are projected to deliver higher DPS, said Ms Jo.

All three companies' revenues and net property income have benefited from recent acquisitions, she noted.

A-Reit leads the sector's dividend growth and is projected to deliver the highest growth of 30.8 per cent in DPS (or 40.9 per cent in aggregate dividend) after a drop of of 33.6 per cent (or minus 25.6 per cent in aggregate dividend) a year ago. This is mainly attributable to the full-year contribution from new acquisitions in Q3 FY16 and FY17, namely the Australian logistics properties and ONE@Changi City.

Both CCT and CapitaLand have already confirmed 6.3 per cent and 11.1 per cent higher DPS respectively, equivalent to 8.4 per cent and 10.9 per cent growth in aggregate dividends. The growth is partially due to higher recurring income from CapitaGreen acquired in 2016.

Despite some dividend cuts, investors are keeping their faith with Singapore stocks.

Said Carmen Lee, head of OCBC Investment Research: "Overall, based on current prices, dividend yield for the STI is projected at about 3.4 per cent for this year and 3.5 per cent for next year.

"The STI has done well for several reasons. The key outperformers for the year included several of the big cap companies, especially those in the financial and property sectors."

This is clearly seen from the gains for the finance and property indices, she said.

The finance, Reits and real estate indices are up as much as 18 per cent for the year compared to the STI's slower 12 per cent. The STI closed at 3,218.57 last Friday.

"The STI should continue to trade towards 3,400 by year-end," said DBS Group Research in its Q4 outlook.

The reflation trade is still alive in Singapore where a synchronised pick-up in global activity is still underway, it said. "We believe the banking and property sectors should still drive index performance."

OCBC's Ms Lee said: "The recent renewed interest in the local en bloc property market has sparked interest in property trading and transactions and has also benefited listed property companies' share prices. Based on the Real Estate index, and despite recent gains, the index is still trading currently at 0.9x book value, effectively implying a discount to book value."

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