In Singapore, dividend investing has been gaining popularity among wealth builders seeking yield for their investment capital. However, dividend investing may not be so straightforward because there are many factors to consider when investing in stocks. This means that there is a need to delve deeper into a company business fundamentals instead of just using a screener to come out with a list of top dividend stocks to invest in.
In my previous articles, I have shared my insights on the top three dividend stocks in Singapore: Asian Pay TV Trust (dividend yield: 19.4% – 26%), Lippo Malls Indonesia Retail Trust (dividend yield: 9.9% – 12.9%) and HPH Trust (9.8% – 12.8%). In those articles, I have highlighted that although these counters offer mind-boggling high yields, there are risks involved as well.
In this article, I will share my research on the top 5 dividend stocks with excellent Return on Equity (ROE). The criteria used are minimum of 5% dividend yield for the past 5 years and minimum of 10% achieved for the past 5 years. The reason why I decided to refine the search is because I believe management’s efficiency in growing a company is important as well. A company that consistently has high dividend pay outs may not be sustainable if its growth lacks resilient in the context of a competitive market.
King of dividend stocks
The search for the best dividend stocks is quite interesting and threw up some outrageous observations.
Hafary Holdings Limited, a supplier of premium tiles, wood flooring and sanitary ware came out top of the list for top dividend stocks. With a market capitalization of only $71 million, Hafary is considered a very small cap. It made its way into SGX Mainboard after an upgrade from the Catalist in 2013.
Although Hafary lacks competitive edge, the dividend yield had been impressive for the past five years (6% – 12%). ROE had been between 15% to 43%. A note of caution is that this counter is tightly controlled by the major shareholders and the free float is only 14%. So investors may face liquidity issue.
Furthermore, the share price of Hafary has been bearish since 2014, falling from $0.225 to current $0.165. Henceforth, the dividends granted would have been eroded by the sharp decline in the share price.
Not surprisingly, the telcos dominated the list of top dividend stocks, with M1 [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
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