[Update-- read the first comment. Credit Suisse could be wrong]
In Singapore, investing in high-yield, low-payout stocks was the best-performing strategy over a period of 15 years says Credit Suisse. “Outperformers” are telco M1; rig builders Keppel Corp and Sembcorp Marine; transport group ComfortDelGro Corp; property developer Allgreen Properties; and conglomerate Sembcorp Industries.
These stocks have dividend yields of up to 6.3% (as of end October) a year and only pay out as little as one-third of their profits as dividends.
Other high-yield, low-payout stocks it mentions are Fortune Reit; and property companies MCL Land and United Engineers. These have dividend yields of over 3% a year but pay out less than a quarter of their earnings as dividends.
Why?
– “High-yield, low-payout essentially means you are buying yield stocks that are trading at a low price-earnings ratio’, or value stocks”. This strategy tends to outperform others in rising markets except in the bubble phase.
– A “low payout implies that these companies are retaining cash for growth which also helps long-term performance”. I never tot of this. Silly me.
– If things go wrong, the dividend yields could be sustained if part of the retained earnings were put into reserves (bit like S’pore’s reserves). This is my tot, not Credit Suisse’s.
I don’t know what those guys there are smoking…
M1 pays out at least 80% of its earnings as dividend, not exactly low payout is it?
Fortune REIT – as a business trust – has to pay out just as much – then how can its payout be less than a quarter?
No.
Well their study might be totally wrong. Thanks. I’ll put a health warning on the piece.
You are welcome
And a health warning…hahah