[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.
– “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.