[Outlook-in-Five] Dividend yield sanctuary in the storm

Everything seems to be out of sync with historical norms. Uncertainties exist everywhere in global markets, and with the latest addition of higher oil prices, it looks like the congregation of multiple market variables all at once - high interest rates, elevated inflation, higher oil prices, banking crisis, corporate earnings cuts… Could this be the perfect storm, and how should investors tread ahead? While short-term volatility remains, it is imperative to look beyond some of the near-term issues and identify longer-term investment opportunities. Singapore’s high dividend yield stocks provide consistent and at times, progressively higher annual income streams, and should form part of a longer-term diversified equity portfolio.  Tune in to our latest podcast with Bank of Singapore’s senior Singapore investment strategist, Carmen Lee, as she shares more about the opportunities on the horizon. __________________________ [ Podcast Transcript - Excerpt] "Everything, everywhere, all at once..." This March 2022 released absurdist-comedy-drama movie was produced at a comparatively modest budget by Hollywood’s standards, but went on to surprise the market and grossed more than USD135m worldwide. In market terms, this is a rare gem with attractive profit margin. It truly surprised on the upside and similarly, in this very uncertain market environment, it will be tough looking for gems that will surprise on the upside consistently. However, what is more conceivable and logical is to look for stocks with good valuation that will consistently provide a good dividend stream through the market ups and downs. Recent Singapore corporate report cards showed that there were still glimmers of hope despite the global economic gloom as several Singapore listed companies beat the market’s reduced earnings expectations and rewarded shareholders with better dividends or one-off special dividends. In an environment that is challenging, especially in view of rising costs, higher oil prices and the heightened possibility of slower revenues and profits, this unexpected sweetener, especially from some of the bigger capitalization companies, is a welcome move for long-term investors. While dividend distribution is highly unpredictable and dependent on economic outlook and specific company’s performance, big-cap companies tend to be more stable and at times on an upwards sloping trajectory. Singapore high dividend stocks offer a steady stream of annual dividends or clearly articulated annual dividend pay-out policies. While corporate earnings growth globally could come under some pressure due to the softer outlook in 2023, this situation is slightly different in Singapore. Earnings Per Share (EPS) is projected to grow from 248.34 in FY2022 to 303.42 in FY2023, up 21.9%, based on the latest consensus estimates from Bloomberg. This is largely explained by the composition of the Singapore market, which has a larger component of listed companies with a stable earnings stream. Other factors include the reopening of the Chinese economy which will benefit Singapore, especially in the 2H23. Also, most Singapore companies are not highly geared, especially after the experiences from the Asian Financial Crisis and the Global Financial Crisis. We believe that the bigger capitalised or more mature companies are in a much stronger position than small-cap companies in FY2023. While high interest rates and elevated inflation will remain in focus in 2023, investors should adopt a longer-term investment horizon and look at other growth factors beyond 2023. Weak market sentiment is an opportune time to accumulate quality names with consistent good dividend yield, especially on price weaknesses.