US Fed has just cut its interest rate by another 0.25% to 1.5 – 1.75% the past week on 30th October. Interest rate cuts has caused traditional interest yielding instruments to be unattractive.
Bond yields such as Singapore savings bonds have dropped to a low as well. As of last issuance, it was yielding 1.74% for a 10 years bond. Moreover, fixed deposits in bank revolves around 1.8 – 2.0% interest rate for a 1 year lock up.
Conventional instruments have disappointing yield rates, which may not be enough to beat inflation.
On the other hand, some stable companies listed on SGX provide dividend yields that exceed 4%, which is an attractive proposition for investors.
Here are 3 quality small cap stocks that deliver good dividends to the shareholders.
#1 UMS Group
UMS Group focuses on delivering equipment manufacturing and engineering services to Original Equipment Manufacturers (OEM) of semi-conductors and related products. The group has its headquarters in Singapore, and manufacturing facilities in Singapore, Malaysia and USA.
The group has suffered from the trade war which has caused its revenue to drop. From the latest half-year report, its revenue dropped by 19% to $29 million, while net profit dropped 43% to $14.7 million.
However, free cash flow increased a whopping 208% to $15.1 million. UMS has been paying out dividends in the range of SGD 0.05 – 0.065 per share since 2010.
It has a high dividend payout ratio of 74.8%. With the current strong cash flow UMS is enjoying, shareholders will at least receive the lower range of the dividends.
UMS last closed at $0.805, which values it at a P/B of 1.86 and gives it a dividend yield of 6.88% (using last year’s dividend).
#2 Singapore O&G
Singapore O&G is established in Singapore and has clinics located throughout Singapore. The group focuses on providing healthcare services to women and children. Its services include Obstetrics, Gynaecology, Breast surgery, Dermatology, etc.
Singapore O&G has experienced a 10.8% increase in revenue to $18.7 million from $16.8 million in the latest half-yearly report, underpinned by an increased number of clinics as well as the services provided..
However, net profits dropped by 22.5% from $6.2 million to $4.8 million due to higher depreciation.
The company has a dividend payout ratio of 105%. Though dividend payout ratio is more than 100%, the company has more than $20 million in cash, which can more than cushion the dividend payouts.
Moreover, it has a free cash flow of approximately $4.3 million which is substantial in keeping up its dividends. Apart from the tantalising dividends, healthcare sectors are regarded as a defensive sector, which is ideal for any economical downturn.
Singapore O&G last closed at $0.35, which values it at a P/B of 3.63 and gives it a dividend yield of 4.41%.
#3 Hanwell Holdings Ltd
Hanwell Holdings has 2 revenue streams in 2 different areas. The group manufactures, and markets fast moving consumer goods such as rice, dried goods, diapers, etc. The group also invests in Tat Seng group, a packaging company with operations in Singapore and China.
Hanwell has experienced a decrease in revenue of 8.5% to $226 million from $248 million, mainly due to the depreciation of RMB. This has adversely affected the bottom line, where net profit dropped 51% to $5.7 million from $11.9 million.
An important point is that Hanwell has achieved free cash flow of approximately $12m as opposed to last year’s negative value. Hanwell has a dividend payout ratio of approximately 52%, and has been increasing its payout since 2016.
Hanwell last closed at $0.23, which values it at a P/B of 0.45 and a dividend yield of 4.26%.
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