Yield Stocks – BT

Analysts still in favour of high-dividend stocks

Telecommunications sector cited as the space to watch for such plays


HIGH-dividend stocks have yet to fall out of favour with some analysts, even though markets have climbed.

In fact, investors might do well to hang on to some dividend-rich stocks this year, they say. Not only might the payouts account for a large part of returns, they might also provide shelter from the vagaries of the market.

A Citi Investment Research report on Feb 8 noted that in the past 10 years, equities in Asia ex-Japan have generated a compounded total return of just 5.9 per cent per annum in US dollar terms, 46 per cent of which came from dividends. ‘This is too large a number to walk away from,’ said strategists Markus Rosgen and Elaine Chu.

And in a year when equity returns are not expected to be stunning, dividends will matter even more, Citi said.

This view is shared by UBS executive director and head of wealth management research Singapore Hartmut Issel.

Mr Issel points out that in a period following an economic turnaround, returns typically range from 10-13 per cent. ‘In such an environment, similar to what we are expecting for 2010, a 5 or 6 per cent yield renders dividend names more interesting,’ he said.

For sample stocks that UBS put to a test, ‘this would account for about half the total return for the year and may mean the difference between beating the benchmark index or trailing it’.

Furthermore, equity mar-kets were still jumpy and investors might derive greater assurance from dividends in hand than from capital gains that may not materialise.

In the past few weeks, for instance, the local stock market has dipped following news of China’s bank lending restrictions, US President Barack Obama’s plan to limit big banks’ businesses and sovereign debt problems in Europe.

‘We expect the equity risk premium to be higher now,’ said DBS Vickers research head Janice Chua. ‘We are seeing more of the defensive and high-yield stocks holding better than high-beta stocks.’

UBS’s Mr Issel also noted that high-dividend stocks may produce ‘decent’ capital gains this year.

All the analysts cited the telecommunications sector as the space to watch for high-dividend plays. Citi picked StarHub and MobileOne (M1) from this industry. DBS Vickers’ favourites are Singapore Telecom and and M1.

StarHub has been in the spotlight over its commitment to pay at least five cents per share every quarter as dividends – some have questioned whether it can maintain this payout in the long term.

Other dividend-rich counters identified include ST Engineering, Singapore Press Holdings, Ascendas India Trust, Mapletree Logistics Trust, Venture Corp and SIA Engineering.

But at the end of the day, before buying that high-dividend or high-growth stock, investors should consider what their risk profiles are, said Aberdeen Asset Management investment manager Christopher Wong.

‘If the risk appetite is lower for certain investors, they may want to consider more dividend-type stocks,’ he said.

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