Singapore's Q3 dividends up, but lags Apac as regional tech companies boost payouts: report

Singapore

DIVIDENDS from Singapore's largest listed companies rose year on year (yoy) in the third quarter, boosted by a relaxation of restrictions on banking dividends, according to a report by asset management firm Janus Henderson Investors.

But the Global Dividend Index report published on Monday observed that Singapore's dividend growth has lagged the Asia-Pacific region over a 12-year period, as the region's fast-growing tech manufacturers are also boosting cash returns to shareholders.

The quarterly report analyses quarterly dividends of the largest 1,200 companies by market capitalisation worldwide, which account for around 90 per cent of global dividends paid.

Singapore-listed companies on this index paid out US$2.7 billion in dividends for Q3, up 4.5 per cent from US$2.6 billion in the same period a year ago.

After adjusting for currency, timing effects and index changes, however, the study said the dividend payout actually rose 24.6 per cent.

"The relaxation of restrictions on banking dividends boosted Singapore in Q3," the report said, noting that the dividends Singapore's banks paid surged by two-thirds yoy.

The Monetary Authority of Singapore had in July 2020 capped the dividends of the local banks at 60 per cent of their FY2019 per-share payout, to ensure the banks had enough funds to support the economy through the Covid-19 pandemic. The restrictions were lifted in July this year.

Meanwhile, weakness at Singapore's largest telco weighed on the market's dividend performance.

"The overall rebound in the country's payouts would have been almost twice as strong were it not for the 56 per cent reduction in Singtel's dividend, which the company blames on rising competitive pressure, the pandemic and structural difficulties," the report added.

And despite the better showing in Q3, total dividends paid during the first 9 months of 2021 are still less than in the same period last year - falling to US$5.8 billion from US$6.8 billion.

Singapore is also the region's laggard over the past 12 years when it comes to dividend growth. Dividends have risen just 34 per cent since January 2010. Across the overall Asia-Pacific region, dividends have surged 174 per cent over the same period.

"The long term trend in Singapore is quite noticeable because it's very different to other countries, being a much more mature economy," said Sat Duhra, co-portfolio manager of Asian dividend income strategy at Janus Henderson. "Because it started from quite a high base already, the growth hasn't been as high."

He said low growth is not necessarily negative, and the fund he manages still owns a number of Singapore companies for their yields.

"As an Asia-Pacific investor, I buy companies in places such as Australia, Singapore, for more mature companies where I see high sustainable yield," he said, adding that he would look to markets such as China and South Korea for dividend growth.

The financial sector was the largest contributor to the dividends paid in Singapore over the past decade, at 55 per cent of the total. This was followed by the communications and media segment, which stood at 26 per cent.

The Asia-Pacific market has also outperformed the global dividend growth of 87 per cent over the past 12 years. Driving this outperformance, Duhra said, is improving profitability.

Profits in Asia have risen 80 per cent between 2010 and 2020.

"As your earnings go up, given that a lot of companies have payout ratios, then your dividend goes up as well," he said.

Asia-Pacific companies have also grown increasingly generous in their payouts, he added, noting that dividend growth has outpaced earnings growth as dividend payout ratios have also been increasing.

Yet, payout ratios in the Asia-Pacific - typically around 35 per cent - are low compared to the more developed markets.

"That tells me that there's a huge opportunity if I look at it for the next 10 years for payout ratios to increase more. Even if earnings don't do as well, dividends we think will still increase."

The low payout ratios also mean there won't be as much pressure to cut dividends if profits fall. Duhra said he had seen evidence of this resilience last year.

Within Asia-Pacific, the market with the highest rate of dividend growth was South Korea. This was attributed to the rise of electronics and appliance maker Samsung Electronics. The second-fastest growing market was Taiwan, with chipmaker Taiwan Semiconductor Manufacturing a key contributor.

The technology sector was the biggest contributor to Taiwan and South Korea dividends over the past decade, accounting for around half the overall dividends. This is higher than the 12 per cent sector weight for tech in the overall Asia-Pacific region.

Duhra believes South Korea is still an attractive market with potential for dividend growth.

"It's not just because of Samsung. The banks are showing good signs of potential high dividends as well, and I think a lot of the industrials, and more cyclical names, have also done well in Korea," he said.

There could be some concerns in China, in certain sectors such as property. Dividends from this sector may be trimmed, Duhra said. But he added that dividends from big payers in China, such as the banks, appear to be relatively safe as their payout ratios are low.

"Generally there is some risk around the overall number for dividends in China," he said, but added it could be offset by performance and rebounds in other parts of the region.

"I think overall, the picture is still good and that's actually the attraction of Asia," he said. "When one region is in a little bit of pressure, then other regions can make up for that."

Attitudes towards dividends in Asia have changed over the past decade, Duhra added, noting that even growth companies in sectors that do not normally pay dividends are talking a lot about their cash flows and dividends.

"The institutional ownership in Asia has really increased over the years, and companies have become quite savvy," he said. "They know that if they want to have long-term, steady holders, they need to pay dividends; and they need to communicate a policy; and they need to stick to that."

For the first 9 months of 2021, the study found that Asia Pacific dividends grew 9.6 per cent from the year-ago period to US$134 billion. A headline growth of 9.7 per cent is expected for the full year, which means Asia-Pacific dividends are on track to hit a record of over US$150 billion in 2021.

Duhra said: "The rebound in dividends in 2021 from what we've seen so far in Asia... it's been very strong, and I now see absolutely no reason why that doesn't continue into the next year."