Old and new dividend plays

This article first appeared in Capital, The Edge Malaysia Weekly, on June 27, 2022 - July 03, 2022.
Old and new dividend plays
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IN times of uncertainty, investors take shelter in dividend-yielding stocks. A check on Bloomberg yielded some unconventional names that are not usually considered dividend stocks.

For example, Boustead Plantations Bhd came out on top of the list, with a forecast dividend yield of 16.9%, based on the counter’s last traded price of 83 sen and Maybank Investment Bank Research’s estimated dividend per share of 14.1 sen for the financial year ended Dec 31, 2022 (FY2022).

Quite a number of plantation companies made it to the top 30 list, namely Kim Loong Resources Bhd, Sarawak Plantation Bhd, Hap Seng Plantations Holdings Bhd and Ta Ann Holdings Bhd. This is not surprising considering the still high crude palm oil (CPO) prices.

While CPO futures have come off their all-time high of more than RM7,000 per tonne, which it reached in April, the commodity remains at elevated levels of more than RM4,000 per tonne at the time of writing. Many analysts are still expecting CPO prices to average RM5,000 per tonne this year, leaving headroom for planters to absorb higher fertiliser and labour costs.

It is worth noting that dividend yields have gone up because the share prices of plantation counters have fallen, likely due to the combination of market uncertainty and lower CPO prices. Of course, as the information is based on analyst forecasts, the actual dividend may vary.

As Maybank IB Research pointed out in its June 7 report on Boustead Plantations, FY2022’s dividend payout ratio may fall short of expectation considering the company’s plan “to conserve cash for acquisition[s] and replanting”.

The usual suspects on the list include consumer play British American Tobacco (Malaysia) Bhd and Astro Malaysia Holdings Bhd, as well as banks Malayan Banking Bhd and Affin Bank Bhd. However, the prospects for BAT may be less rosy than for Astro given the highly regulated sector it is in.

Apart from these, utility players and concessionaires retain their places on the list as stable dividend-yielding stocks. These include Malakoff Corp Bhd, Taliworks Corp Bhd and Cypark Resources Bhd.

“Dividend plays work well for investors who prefer to construct a more passive portfolio, as good dividend gems can help outperform inflation in the long run, hence maintaining one’s purchasing power in the long term. Defensive plays such as food and beverage, retail and utilities can be a good complement to an investor’s overall portfolio, depending on the investor’s risk appetite,” says Fortress Capital Asset Management (M) Sdn Bhd investment director Chua Zhu Lian.

Real estate investment trusts (REITs), with their long-term lease agreements, are considered defensive investments, although an environment of rising interest rates could reduce their appeal.

“REITs could be a better hedge against inflation in a volatile market. Having said that, I would encourage investors to look for fundamental growth stocks, because in these next three to five years, the megatrend technology and semiconductor industries will be big. Don’t ignore those markets,” says Areca Capital Sdn Bhd CEO Danny Wong Teck Meng.

He explains that some industries and manufacturers may benefit from the weak ringgit because Malaysia is not as aggressive as developed markets in normalising interest rates. In that sense, the ringgit will be seen as relatively weaker than developed-market currencies. Therefore, the local currency may seem slow or depreciate against major currencies, which should encourage exporters.

However, Ng Zhu Hann, CEO of boutique asset management company Tradeview Capital Sdn Bhd, is pessimistic. “If you look at our market, you will realise that regardless of the ‘defensive qualities’ of a company or sector, when the global market starts selling, no sector or company will be spared, be it utilities, telecommunications, consumer goods or essentials. A broad-based systemic sell-off means there is really no safe haven apart from fixed deposits,” he says.

Ng advises investors to consider reputable companies with an established track record of consistently providing dividends to ensure there are returns from investments in the midst of a potential recession or prolonged down cycle. “At least by doing so, you have an income stream from the stocks you are holding,” he points out.

“When the market rebounds, these stocks will follow suit. I strongly believe that if you protect your downside, the upside will take care of itself.”

 

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