SINGAPORE (April 1): UOB Kay Hian is recommending a wide variety of yield plays offered by Singapore ranging from aviation and banks, to developers and REITs as central banks around the world continue to ease their monetary policies.
In a particular, the research house is expecting dovish dispositions at both the Federal Reserve (Fed) and the European Central Bank (ECB) to rekindle general investor interest in yield plays, as an abundance of liquidity make their recurrent dividends more attractive.
In a Monday report, analyst Jonathan Koh highlights yield plays as a more defensive option for investors as they usually hold up well during market corrections, based on historical observations.
“Fluctuation in dividends is usually mild compared to volatility of share prices. The ability to pay recurrent dividends is also a testimony to the strength of a company’s business franchise. Thus, yield plays are ideal to ride market volatilities,” says Koh.
He also sees “dividends galore” for yield plays offered by Singapore in particular, highlighting that the Straits Times Index STI (FSSTI) provides a dividend of 4.2%, which is 1 times SD above the 3.6% mean.
Further, analyst notes that Singapore REITs’ are seeing a widening yield spread despite a recent rally in the sector’s share prices – expanding by 4bp to 3.47% as opposed to the recent yield performance for 10-year Singapore government bonds, which fell by 21bp to 2.05% in March this year.
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UOB Kay Hian currently has “buy” calls on SATS, ST Engineering, DBS, OCBC, NetLink NBN Trust and ComfortDelgro with target prices of $5.60, $4.40, $28.40, $13.85, 92 cents and $2.77, respectively.
Its top developer picks are CapitaLand, Ho Bee Land and PropNex (TP: $4.40, $2.79, 66 cents), while S-REITs include CapitaLand Commercial Trust, CDL Hospitality Trusts, Keppel REIT and Parkway Life REIT – all of which are rated “buy” with the respective target prices of $2.16, $1.83, $1.35 and $3.25.
“We maintain existing earnings forecasts. Key risks include: threat of hard Brexit, uncertainty over outcome of US-China trade negotiations, and slowdown in Europe and China,” concludes Koh.
