Cover Story 2: Stocks with dividend yields of over 4% an attractive investment option

This article first appeared in The Edge Malaysia Weekly, on January 25, 2021 - January 31, 2021.
Cover Story 2: Stocks with dividend yields of over 4% an attractive investment option
-A +A

WITH the overnight policy rate (OPR) at a record low of 1.75% and with most economists pricing in another 25 basis point cut to 1.5% in the first quarter, savers with a higher tolerance for risk may opt for other alternatives for returns on their savings.

One option would be to invest in stocks that offer dividend yields of at least 4% or more, which is much higher than the prevailing fixed deposit rate of 1.75% to 2% offered by most banks.

“Dividend-yielding stocks are evergreen stocks as long as they keep paying. If you are buying [a stock] for dividend yields, then you should not expect too much from capital appreciation.

“However, you would still need to select carefully to ensure the dividend stocks that you buy can continue to pay indefinitely in good times or bad,” says TA Investment Management chief investment officer Choo Swee Kee.

Private investor and former investment banker Ian Yoong says it is always the right time to look for attractive dividend-yielding stocks.

“My definition of an attractive dividend yield is 1% above the 12-month fixed deposit interest rate, which is currently about 2% per annum.

“[Aside from an attractive yield], the underlying business has to be fundamentally attractive and well managed by honest and capable management. A dividend policy will be good to have too,” he says.

Peter Lim Tze Cheng, founder and chief research officer of independent research firm Trident Analytics Sdn Bhd, says it is important to analyse the company’s earnings and dividend track record.

“The thing about dividend yields is that it is calculated based on two numbers with two different timeframes — the dividend payments, which are historical, over the share price, which is current.

“The risk of using this simple approach is that a stock may look high-yielding because its current share price has fallen due to challenging economic conditions. The pertinent question to ask here is, if this year’s profit is falling, can they sustain last year’s dividends?” he says.

Table 2 shows stocks with dividends of above 4%, based on their closing share price on Jan 18. We take a closer look at some of those stocks here.

Jaycorp Bhd

Jaycorp Bhd’s net profit for the first quarter of its financial year ending July 31, 2021 (1QFY2021) more than doubled to RM12.34 million on the back of a 40% increase in revenue to RM107.21 million. This was boosted by its furniture division due to increased demand from the Asian and North American markets.

At its closing price of RM1.58 on Jan 18, Jaycorp generates a dividend yield of 6.3%. Compared with a year ago, its share price has appreciated by 61.4%. Aside from its furniture division, Jaycorp also has interests in kiln-drying, the manufacturing of carton boxes, renewable energy as well as engineering and construction.

UOA Development Bhd

For the nine months ended Sept 30, 2020, UOA Development Bhd reported a 24% year-on-year (y-o-y) increase in net profit to RM356.33 million, despite revenue falling 26% to RM650.49 million. This was largely due to a fair value adjustment of RM114 million, as a result of the revaluation of UOA Corporate Tower. The group completed the disposal of the building to UOA Real Estate Investment Trust for RM700 million in December last year.

At its closing price of RM1.60 on Jan 18, UOA’s share price has declined by 15% from a year ago. At this price, the stock commands a dividend yield of 8.8%.

Perusahaan Sadur Timah Malaysia (PERSTIMA) Bhd

Tinplate producer PERSTIMA reported a 29% increase in net profit to RM25.66 million for the first half of its financial year ending March 31, 2021, despite revenue falling 9% to RM423.14 million. This was due to a better profit margin.

At its closing share price of RM3.75 on Jan 18, PERSTIMA generates a dividend yield of 5.25%. Compared with a year ago, its share price has declined by 5%.

Kumpulan Fima Bhd

Kumpulan Fima Bhd, which is involved in the bulk handling and storage of various types of liquids, transportation and forwarding services, the manufacturing and distribution of canned fish and food packaging as well as oil palm and pineapple cultivation, reported a 32.3% increase in net profit to RM 26.76 million for the first half of its financial year ending March 31, 2021, thanks to a higher profit contribution from its plantation and bulking divisions.

Revenue for the period, however, declined by 4% to RM233.32 million.

At its closing share price of RM1.89 on Jan 18, Kumpulan Fima commands a dividend yield of 4.8%.

Kumpulan Fima’s subsidiary Fima Corp Bhd, which is involved in oil palm cultivation and the production and trading of security and confidential documents, reported a 19.4% increase in net profit to RM12.12 million for the first half of its financial year ending March 31, 2021, also due to a higher profit contribution from its plantation division.

Revenue for the period fell 4.7% to RM106.18 million. At its closing share price of RM1.74 on Jan 18, Fima Corp offers a dividend yield of 7.18%. Compared with a year ago, its share price has appreciated by 6.4%.

Ta Ann Holdings Bhd

Plantation company Ta Ann Holdings Bhd reported a 74% y-o-y increase in net profit to RM66.27 million for the first nine months of its financial year ended Dec 31, 2020, thanks to the higher average selling prices of crude palm oil. Revenue for the period was up 29% to RM854.68 million.

At its closing share price of RM2.79 on Jan 18, Ta Ann’s dividend yield stands at 5.3%. Compared with a year ago, its share price has declined by 8.8%.

However, its exposure to commodity prices could mean volatility in earnings.

Poh Huat Resources Holdings Bhd

Furniture maker Poh Huat Resources Holdings Bhd reported a 2% increase in net profit for its financial year ended Oct 31, 2020, to RM51.9 million, on the back of a 5.9% decline in revenue to RM659.5 million.

A key furniture sourcing point, Poh Huat has received more orders from its customers for shipments all the way until July 2021. At its closing price of RM1.59 on Jan 18, Poh Huat has a dividend yield of 5.03%. Compared with a year ago, its share price has appreciated by 23%.

Tong Herr Resources Bhd

Stainless steel fastener manufacturer Tong Herr Resources Bhd reported a 66% increase in net profit for the first nine months of its financial year ended Dec 31, 2020, thanks to lower prices of raw materials, namely stainless steel wire rod and billet prices. Revenue, however, declined by 12.69% to RM423.25 million owing to the lower sales volume of fasteners as a result of the pandemic.

At its closing share price of RM2.22 on Jan 18, Tong Herr shares offer a dividend yield of 4.5%. Compared with a year ago, its share price has appreciated by 3.1%.

 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.