The volatile start of 2018 has reminded investors to keep long-term investment decisions on fundamentals. In addition, well-positioned companies deliver foreseeable dividends that are a form of safe haven for investors. Considering the rising interest rate environment, investors should pick dividend stocks based on both yield and fundamentals.
Here are 3 top dividend plays according to analysts from DBS Research.
Frasers Commercial Trust
Despite having made steady gains in the past 18 months, share price growth for Frasers Commercial Trust (FCOT) remains trailing behind the other office REITs. The main attribute to the lag in share price performance was due to the uncertainty in regards to its anchor tenant, HP, which is vacating FCOT’s Alexandra Technopark. However, this should have already been priced into the stock as HP has long confirmed that it will stagger its exit.
In addition to that, there are some concerns over FCOT’s long-term growth. However, the acquisition of Farnborough Business Park in UK recently (December 2017), should help to allay these concerns as the diversification from its core Singapore and Australia markets will become an avenue for growth. This is because, compared to the tightening yield in the core Singapore and Australia markets, UK office properties still offer attractive yields.
Analysts from DBS Research reiterated their Buy call on FCOT with a target price of $1.71. In addition, FCOT is offering an attractive yield of 6.4 percent, based on its current share price of $1.41.
Frasers Hospitality Trust
With 15 properties across three continents and nine cities, Frasers Hospitality Trust (FHT) has a portfolio of well diversified and quality hospitality properties. The recent rights issue has led to a higher free float and rise in its share price. This reflects the strong investor interest in FHT, which signalled that buying momentum appears to be far from over.
FHT has a strong track record of acquisitions and the REIT recently acquired Sofitel Sydney Wentworth, Novotel Melbourne and Maritim Hotel Dresden. These properties are expected to continue to contribute to growth given the favourable supply-demand dynamics in their area of operations. Additionally, Singapore’s hospitality sector is continuing to recover. FHT’s Singapore hospitality assets should also see better performance as revenue per available room is expected to improve.
Due to the rights issue, FHT is well positioned to make more acquisitions owing to enlarged financial headroom. Gearing ratio now just stands at around 33 percent. Potential catalyst for the trust will include distribution per unit (DPU) accretive acquisitions.
Analysts from DBS Research reiterated their Buy call on FHT with a target price of $0.89. They also gave the trust a forward yield of 6.9 percent.
The only non-REIT on this list, Singapore Telecommunications (Singtel) has seen their share price take a toll, due to poor earnings results and negative sentiments relating to TPG’s entry being factored in.
However, in comparison to its peers, Singtel is trading at a huge discount of 20 percent to 40 percent at 5.6 times its FY18 forecasted enterprise value over earnings before interest, taxes, depreciation and amortisation (EV/EBITDA). Currently, M1 is trading at seven times EV/EBITDA, while StarHub is trading at nine times. The regional average is 7.5 times EV/EBITDA. The large discount is due to the mounting losses from its digital businesses.
However, its digital advertising arm has achieved an earlier-than-expected breakeven. Given the rise of Internet-of -Things (IoT), the digital businesses should provide a competitive edge for Singtel over its competitors and is necessary from a long-term perspective. The segment, like most start-ups, is not yet profitable and hence should be valued on revenue multiples rather than earnings.
Analysts from DBS Research gave Singtel a Buy call with a target price of $4.30. The group paid a special dividend of $0.03 per share for 1H18, on top of an interim dividend of $0.068. Assuming Singtel maintains a final dividend of $0.107 in 2H18, forward-looking yield for full FY18 would be around 6 percent based on current share price of $3.37.