How to Survive The Coming Dividend Apocalypse

2020-09-01     thesmartinvestor
How to Survive The Coming Dividend Apocalypse

Around three-quarters of Singapore’s Straits Times Index (SGX: ^STI) companies have recently reported their results.

The results aren’t pretty, as you can see in the table below.

Three out of every four that reported have lowered their dividends.

Four of them, Genting Singapore (SGX: G13), SATS Ltd (SGX: S58), Singapore Airlines Ltd (SGX: C6L) and Sembcorp Industries Limited (SGX: U96), have stopped paying interim dividends altogether.

It’s not surprising.

After all, the quartet reside in some of the hardest hit industries amid the pandemic.

An ominous wind

Singapore’s economy has been hit hard by the COVID-19 pandemic.

The nation’s second-quarter gross domestic product (GDP) shrank by a record 13.2% year on year as the economy grappled with the circuit breaker measures and weak external demand.

Against that backdrop of widespread pain, most businesses are likely to suffer.

Yet, there are four companies, namely Singapore Exchange Limited (SGX: S68), Jardine Strategic Holdings Limited (SGX:J37), Mapletree Logistics Trust (SGX: ME8U) and Venture Corporation Limited (SGX: V03) that have bucked the trend by raising their dividends.

They are not alone in raising dividends.

There are other non-blue chip companies that have paid out higher distributions.

Top Glove Corporation Berhad (SGX: BVA) and Riverstone Holdings Limited (SGX: AP4), which have both benefited from a sharp rise in glove demand, raised their interim dividends by over 150%.

Meanwhile, supermarket operator, Sheng Siong Group Ltd (SGX: OV8), is also rewarding shareholders with twice the amount of interim dividends compared to a year ago.

Elsewhere, test handler manufacturer AEM Holdings (SGX: AWX) has upped its interim dividend by 150% as its second-quarter profits rose by just as much.

Clearly, there are companies out there that are fortunate and able dividend payers despite the pandemic.

As investors, we have to keep our eyes open for such opportunities.

A frenzy plant of growth

Beyond dividends, growth companies can also offer capital appreciation.

The pandemic has been a bane for most businesses but has been a boon for companies that offer digital services, such as video conferencing, telehealth and online shopping.

For instance, Singapore’s retail sales fell by almost 28% year on year in June.

However, the proportion of online retail sales has grown from 5.8% of total retail in January this year to over 18% in June.

Amid the massive shift towards digital services, share prices of companies such as online retail giant (NASDAQ: AMZN) have risen over 81% year to date.

Meanwhile, Zoom Video Communications (NASDAQ: ZM) shares are up over 373% for the year as demand for its video conferencing service surged amid lockdowns imposed by the pandemic.

Much like the dividend-paying stocks, there are companies out there that are able to continue producing strong results against the backdrop of weak economic activity.

And as they deliver on their promise, the share prices have followed.

The great divide

The pandemic has been devastating in many ways.

When it comes to service and product demand, the line between a “must-have” and a “good to have” has been unforgiving.

But where the dollars are flowing is not easily predictable.

The essential services, such as Zoom’s video conferencing, have seen their revenue skyrocket.

Zoom is expecting its sales for 2020 to almost quadruple, growing from US$623 million to US$2.4 billion by the year-end.

Meanwhile, The Boston Beer Company (NYSE: SAM) has seen demand for its craft brew increase by 42% year on year in the latest quarter.

But it doesn’t mean that all beverages are in high demand.

The Coca-Cola Company (NYSE: KO), which is typically deemed a non-discretionary product, saw its sales plunge by almost 30% year on year in its latest quarter. The iconic beverage company saw demand for its “away-from-home” channels (think: brick and mortar stores) decline substantially.

The contrast in fortunes between Coca-Cola and the Boston Beer Company is a good reminder that we may not know how each business scenario will play out.

Get Smart: Lifelong learning remains

We are all lifelong students of investing at The Smart Investors.

While we have, collectively, decades of investing experience, we also recognise that we are going through a pandemic for the first time.

All of us are.

As such, none of us know for sure how the future will turn out.

While we are confident of our ability to invest, we don’t want to be over-confident.

That’s why, for The Smart Dividend Portfolio and The Smart All Stars Portfolio, we have taken our time to invest monthly, diversifying our portfolio over 15 companies each for dividends and growth.

And already, we are seeing results.

The Smart Dividend Portfolio is up almost 6%, and one of our stocks within the portfolio has already doubled in value.

We are also diversifying over time, taking our time to learn from new developments.

We are observing how different companies and management teams react to the pandemic, how demand is growing, stagnating or plunging.

While we cannot be sure of the future, we are sure that our learnings during this difficult period will only help us become better investors in the years ahead.

That’s why we are learning all the time. For life. You should too.

Want to know what stocks we like for our portfolio? See for yourself now. Simply CLICK HERE to scoop up a FREE copy of our special report. As a bonus, we also highlight 6 blue chips stocks trading at a 10-year low. But you will want to hurry – this free report is available for a brief time only.

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Disclaimer: Chin Hui Leong owns shares of Sheng Siong Group, Singapore Exchange, CapitaLand Mall Trust, Mapletree Industrial Trust, Mapletree Logistics Trust, UOB, OCBC, Dairy Farm, Hongkong Land, SATS, DBS Group, Amazon, and The Boston Beer Company.

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