Checking out upcoming dividends. In our Strategy piece recently, we highlighted dividend as one of the selection criteria. Indeed, of our 12 stock picks for the first quarter 2003, quite a handful offer superior dividend yields as added attractions, including AZRB (RM3.08), Oriental Holdings (RM3.50), UAC (RM3.94), and Uchi Technologies (RM8.30).
Twenty generous dividend payers. In today’s write-up, we focus on listed companies with December year-end which can be expected to unveil above-average dividends in their upcoming result announcements next month. On this basis, we arrive at a list of 20 stocks.
Of the 16 companies that pay interim dividends, five have raised and six have maintained their respective payouts. Excluding special dividends of BAT (RM35.50) and MBM Resources (RM2.71) in 2001, only three of the 16 companies have cut back interim dividends in 2002, in line with reduced profitability, i.e. Tan Chong (RM1.13), Warisan TC (RM2.26) and Yeo Hiap Seng (RM1.49).
Issues of note. For investors looking to beat deposit returns and yet seek the comfort of downside cushion, we believe our list serves as a good starting point. For this purpose, several issues are of note. First, Bintulu Port (RM2.33), Supercomal (RM1.65), Uchi and United Plantations (RM4.32) typically declare their final dividends separately and subsequent to their results announcements.
Among the four, Uchi and United Plantations both offer compelling valuations: Uchi backed by its strong R&D (research and development) niche, while United Plantations ranks high as one of the most efficient plantations offering pure palm oil exposure.
In contrast, the key attraction of Supercomal and Bintulu Port is principally derived from dividends. The dividend appeal also applies to Cycle & Carriage Bintang (CCB) (RM4.10) and Warisan TC.
In particular, CCB is worth a mention. We note a sharp increase in net cash as the company draws down inventory ahead of the new Mercedes distribution arrangement this year. While profitability is set to fall sharply at CCB, we would not rule out the possibility of higher dividends in the light of the robust cash levels.
Seven could spring final dividend surprise. Assuming that the 20 companies on the list maintained their 2001 final dividends in 2002, net yields would range from 1.6% in the case of MBM Resources to 7.1% for Supercomal Technologies. Of the 20 stocks, we see scope for seven to do better than this fairly conservative assumption, i.e. APM (RM3.00), BAT, Hi & Low (RM2.96), NCB Holdings (RM1.66), Oriental Holdings, Public Bank (RM2.34), and United Plantations.
Except BAT, which we see as nearly fair valued, and Public Bank, which we like but advocate a cheaper entry via Public Finance (RM7.70), the other five stocks are on Surf88’s Buy list, noting though the thin trading liquidity for NCB Holdings. Meanwhile, we would also reiterate the special circumstances noted for CCB as mentioned earlier.
On the converse, shareholders may have to pare dividend expectations for Carlsberg (RM11.10), which could reduce special payout in the light of the challenging environment that pressured earnings 21% lower in January–September 2002. It is also realistic to be more conservative about Bintulu and Uchi after the two more than doubled net interim dividends several months ago.
Other potential candidates. Dividend-driven investors should also keep an eye on EON (RM8.45), which consistently has been paying net final dividend of 28.8 sen per share the past few years. This year, we have not included EON in the list of 20 companies as the scope for a final dividend is not entirely certain after the recent special net dividend of RM3.06 per share, which has already been paid.
Notwithstanding, EON remains on our Buy list for its asset attraction amid the ongoing move to unlock shareholders’ values.
While the Hong Leong group of companies are not due for final dividends given their mostly June financial year-end, several companies under the stable are expected to declare fairly generous interim dividends. These would include OYL (RM20.70), Hong Leong Industries (RM3.74), and Hume (RM2.49). Based on the maintenance of interim dividends for the June 2002 financial year, investors can look forward to net yields of 1.7% for OYL and 1.9% for HLI. Hume could pleasantly surprise given indications of full-year net yields of 5.8% after the recent restructuring.