The volatile start to the year has made investors being jittery about the outlook for stocks in 2016. That being said, panic selling has been making dividend paying stocks even more attractive at their current depressed valuation.
Decreasing Yield from Risk Free Assets
There is an increased interest among investors for dividend-yielding names in Singapore. This follows the decline in the 10-year Singapore government bond yield by 25 bps over the last month to 2.36 percent, which has also been a catalyst in making dividend paying stocks an attractive addition into portfolios.
Deutsche: Potential Capital Gains On Top Of Dividends
Among the stocks with analyst coverage from Deutsche, Deutsche highlights five stocks that not only pay good dividends, but also with potential for capital gains of at least 15 percent. Naturally, REITs immediately comes to mind.
Below is a breakdown of the top five dividend yielding stocks that Deutsche recommends to acquire while the recent volatility in the market continues to depress its share price (ranked according to dividend yields).
1. HPH Trust: High Dividend Yield Provides Margin of Safety
HPH Trust has the highest dividend yield at more than nine percent for 2016E. Deutsche believes that HPH Trust’s 2016/17E Free Cash Flow (FCF) yields of 15.2/14.7 percent will be able to support its semi-annual dividend pay-out.
On top of the good dividend yield, Deutsche forecasts a price target of US$0.62 which represents a 26 percent upside.
2. Mapletree Logistics Trust: PB Below Its Long Term Average
Mapletree Logistics Trust’s strong FY17/18E FCF yield of 8.2/8.5 percent, as well as positive earnings growth from active capital recycling and accretive acquisitions should support quarterly Dividend Per Unit (DPU). On top of active capital recycling and accretive acquisitions, Mapletree Logistics Trust is priced at 0.8x PB. This is below its long-term average of 1.1x, adding to the positive catalysts for the stock for capital gains.
3. M1: Oversold On Fourth Telco Worries
The stock declined 14 percent after its recent decision to cut dividend pay-out to 80 percent. At 7.7 percent yield in 2016E, M1 is still one of the top dividend yielding stocks in Singapore. Its semi-annual DPS is still well supported by stable earnings over the next two years.
The concerns from the conception of the fourth telco operator has led to M1 being oversold. However, Deutsche estimates M1 to be valued at an intrinsic value of $3.90.
4. Keppel DC REIT: Growth Opportunities Aplenty
Just like Mapletree Logistics Trust, 2016/17E FCF yields of Keppel DC REIT stands at 8.4/8.6 percent. Furthermore, Keppel DC REIT continues to see positive earnings growth from strong demand for data centres. Its potential T27 acquisition should continue to support Keppel DC REIT’ semi-annual DPU.
Deutsche foresees rental growth for Keppel DC REIT’ strong portfolio, which should drive FY16 DPU growth. Deutsche also foresees potential for additional inorganic growth via acquisitions.
5. CapitaLand Commercial Trust: Strong Demand For Services
Office rental growth continues to be strong from Technology, Media and Telecommunications (TMT), law firms and regional banks. Deutsche foresees this demand to continue to gather momentum in the next 12-15 months. Deutsche expects CCT to pay out its semi-annual dividend, supported by its 2016/17E FCF yield of 7.4/7.6 percent.