How to Survive a Dividend Apocalypse

2020-08-10     thesmartinvestor
How to Survive a Dividend Apocalypse

The Singapore dividend apocalypse is here.

If there is any doubt, consider this — based on the latest reported earnings, only four Straits Times Index (SGX: ^STI) component companies have increased their dividends. 

Keeping the dividends unchanged has been a rare sight as well, with only two companies within the index able to do so.

Below is a detailed summary of dividends by all 30 blue chips within Singapore’s main index.

Source: Company announcements, earnings presentations, and website;

Note: Dividends for Hongkong Land, Jardine C&C, Jardine Matheson, Jardine Strategic and Dairy Farm are in US dollars; Dividends for Thai Beverage are in Thai Baht.

Keeping our wits about us as the dividends come tumbling down will not be easy.

Survival mode

There is little doubt that 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 12.6% year on year as the economy grappled with the circuit breaker measures and weak external demand.

Given the tough operating environment, companies in the worst-hit sectors are looking to just survive the fallout, let alone turn a profit.

Unfortunately, when profits are sharply reduced, there is less money to go around and less appetite to pay out dividends.

For dividend investors, it is imperative to take stock of the situation and reposition our portfolios where needed so that we can survive the fallout of reduced income.

1. Confront the brutal facts

We have to confront the current situation head-on.

There is little point in trying to downplay the severity of the situation or beat around the bush.

For every stock that we own, we should have a clear idea of the operating environment that it faces, and the possible damage the company will suffer.

Thankfully, the current earnings season will shine a light into the performance of our companies during the difficult circuit breaker period.

By following the latest announcements, investors will be able to find out how the different companies are coping with this unprecedented situation, what they are doing in response and the future outlook for the business.

As Smart Investors, we have to maintain an objective mindset as we review the information, neither downplaying the potential threats nor being overly optimistic.

2. Your investing horizon

As we assess the earnings report, we have to look beyond the current year and lengthen our view of the company past what we can see today.

To get to the crux of the matter, we have to assess whether the damage to the businesses we own will be temporary or permanent.

There are a few questions that come to mind …

Will the company’s services and products remain relevant in the future?

Does the company have enough financial strength to pull through the rough stretch ahead to survive and thrive in the future?

Is the management team aware of risks posed by the pandemic and can come up with plans to respond to the challenge?

To be sure, figuring out whether the damage is permanent or temporary is anything but easy. If there is one thing that the pandemic has taught us, things can quickly change — and that leads us to the final point.

3. Leaving room for future developments

The investing community, including you and me, is going through a pandemic for the first time.

It’s not easy.

Even our most basic assumptions have been challenged.

For instance, none of us would have expected that we would see a day where the roads of Singapore would be devoid of traffic.

But that is what happened during the circuit breaker, when public transportation saw an 80% drop in ridership.

What’s more, there are few things that could have been fully understood ahead of time.

If you were expecting hospitals to do well during a pandemic, that would not be the case. Raffles Medical Group Ltd’s (SGX: BSL) hospital services segment recorded a 14.5% decline in revenue as patients deferred their elective surgeries.

Instead, the likes of Sheng Siong Group Ltd (SGX: OV8) and Top Glove Corporation Berhad (SGX: BVA) have seen their fortunes soar as the pandemic drags on.

Get Smart: The Smart Dividend Portfolio

As we are facing an unprecedented situation, we need to remain open on what we think we know. It’s also important to remain humble and receptive to new developments.

As such, we should give ourselves time to validate our observations and not be too quick to conclude, and be ready for new surprises along the way.

The good news is that the core principles of dividend investing have not changed.

Despite a 20% decline in the stock market since the start of the year, The Smart Dividend Portfolio that we have been running since February is showing a gain for the year.

In fact, one of the stocks in our portfolio has almost doubled.

While another stock has announced a doubling in dividends.

But true to what we preach, we should not get complacent.

We will be looking to do a thorough review of our portfolio in August. We will be closely examining each stock we own, laying out its good points alongside all the challenges that we see.

We believe that the process will be rewarding for members that are looking to build a sturdy portfolio that can withstand the market volatilities and provide an income for our generation and future generations to come. .

This National Day weekend, in honour of our country’s determination and resilience during these challenging times, we’ve decided to open up our flagship service, The Smart Dividend Portfolio, at one of our lowest price points ever.

Once you sign up, you get immediate access to ALL 15 stocks within our Smart Dividend Portfolio.

Just click the button below to learn more about The Smart Dividend Portfolio and to take advantage of this tremendous opportunity!

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

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