After spending some time (and capital) investing in the local stock market in Singapore, I realised a few things. Firstly, as a dividend growth investor, most Singaporean companies that are considered good dividend stocks (REITs aside) do not have a long history of dividend increases. They are more likely to pay out more dividends in good years, and less in poorer years. This might be attributable to the fact that most of these companies have pretty high payout ratios of 80% and above, and when earnings drop, they either have to lower the dividend payout or eat into their cash reserves if they want to maintain the dividend payout.
Additionally, I needed to diversify my portfolio, as it was heavy on industrials (and industrial services), transportation/logistics, and REITs. I was looking for large consumer staples producing companies (which are typically more defensive and are good sustainable dividend payers) as well as healthcare companies which were attractively priced. The few I could think about was Dairy Farm Holdings as well as Raffles Medical, but I thought that they were pretty overpriced and the current yields were too low.
This led me to look overseas for more opportunities, and my current holdings are as shown:
Stock
|
Shares
|
Market Value (£)
|
% of Portfolio
|
GlaxoSmithKline
|
75
|
1,082.10
|
28.35
|
Royal Dutch Shell
|
26
|
645.32
|
16.90
|
Unilever
|
19
|
512.24
|
13.42
|
Royal Mail
|
111
|
480.35
|
12.58
|
Tesco
|
200
|
457.30
|
11.98
|
BAE Systems
|
77
|
353.43
|
9.26
|
British Petroleum
|
61
|
286.79
|
7.51
|
Portfolio Value
|
£3,818
|
Dividends (Sept)
|
£0.00
|
Average Monthly
Dividends
|
£14.40
|
In addition, I hold 45 shares of General Electric in the US currently worth US$1164.15, and adding another US$3.30 of average monthly dividends.
I looked more to the UK stock market compared to the US market as the UK does not tax dividends, whereas the US has a 30% withholding tax on dividends. However truth be told, there are a lot more companies in the US which meet my criteria compared to the UK, but the 30% tax made me reduce my allocation to American stocks.
GSK being a large pharmaceutical company, and Unilever being a large consumer staples company and both having a pretty wide economic moat as well as paying out pretty decent dividends which have been growing over the years fit the requirements I was looking for.
Of course, foreign stocks come with their own risks such as foreign exchange risk, where your gains in these stocks are eroded due to fluctuations in currency exchange rates. Also, being a small-time investor in foreign stocks, my best choice was to use Standard Chartered as a brokerage. Though the fees they charge are cheap, one pretty big cost is the huge foreign exchange spread when I convert my Singapore Dollars to US Dollars or Pound Sterling. In the long run, I hope to have enough foreign currency to open foreign currency accounts with them, so that I have the option to change currency elsewhere before transferring it into the FCY accounts then the brokerage account to reduce this cost.
An interesting development that will impact the UK markets is Scotland's upcoming referendum in a few days time to secede from the United Kingdom and be an independent country. The Pound Sterling has taken quite a beating due to this recently, and I might take advantage of the current lower value of the Pound to change some SGD. Also of late due to the same reasons, UK stocks have been a lot more volatile, providing potential good entry points for some stocks. If they really succeed at doing so, I reckon there would be greater market volatility and also a good opportunity to get a few bargains if stocks do gap down.
Until next time!
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