Yield Stocks – AmFraser
We think investing in high yield stocks is a way to protect and grow wealth, particularly in an inflationary yet uncertain environment. When the market dips or corrects, yields rise on lower prices, which is an opportune time to invest. Should the market remain flat thereafter, investors have dividend returns to fall back on even when there is no capital appreciation.
We shortlisted stocks based on three criteria: 1) more than 7% dividend yield, 2) more than $150mil market capitalization and 3) trading volume in the past 30‐days of more than 100k shares. Macquarie International Infrastructure Fund ($0.570, BUY), on which we have a buy rating, topped the list with 9.6% yield.
Accordingly, we examined each stock to determine 1) the consistency of the dividend payouts in the past three years; and 2) its ability to maintain earnings. Out of 15 high yield stocks, Second Chance Properties ($0.365, UNRATED), Sim Lian Group ($0.605 , UNRATED) and QAF ($0.670, UNRATED) have the strongest combination in terms of consistency in dividend payout and earnings growth.
Second Chance Properties is trading at 8.8% dividend yield and 5.6x T12M P/E. It has a reasonable gearing of 0.37x, with bulk of its assets in retail properties in Singapore. It has a growing DPS of 15.0% CAGR over FY07‐11, backed by strong and stable cash flow from operations where they achieved S$9.0‐S$12.0mil every year in the past five financial years.
Sim Lian Group is trading at 7.9% yield, 2.6x FY11P/E and 0.9x P/B. Balance sheet has strengthened over the years, with net gearing ratio dropping from 3.3x in FY08 to 1.1x in FY11. The company recorded 110% YoY jump in earnings in 1HFY12 to $139m.
QAF is trading at 7.5% dividend yield, 5.8x T12M P/E and 0.9x P/B. Their growth in DPS over the past 5 FYs has been exponential, with CAGR of 19%. With a strong current ratio of 1.5x and strong cash flow from opera