Income Focus List: Who Made The Cut?

15 stocks made the cut on our Income focus list.

Includes KepInfra, ComfortDelGro and Guangdong Investments that were previously highlighted.

Suitable for investors looking to build a passive stream of dividend income.

Since the sneak preview of our upcoming series of focus lists, a flurry of preparatory work has been set in motion as we plough through the close to 3,000 listed stocks on the Singapore and Hong Kong exchanges looking for suitable candidates. While the Growth and Value focus lists are still a work-in-progress, we're excited to unveil the 15 stocks that made the cut on our Income focus list! These companies have dividend yields are above the market average, as well as sustainable dividend payments that have the potential for future growth. Are you looking to build a passive stream of dividend income to supplement your existing income sources? Then look no further! Here are the stocks that may warrant a place in your portfolio:

Table 1: Top Picks For Our Income Focus List

1. Keppel Infrastructure Trust

• Resilient cash flows with strong earnings visibility.
• Strong balance sheet supports future distributions.
• Attractive return potential with high distribution yield of about 7.09%.

For investors who may wish to introduce some dividend-generating resilience into their investment portfolios, Keppel Infrastructure Trust (SGX.A7RU) may be worth a closer look. The trust has a diversified portfolio of recession-proof infrastructure assets that have facilitated its stable distributions over the quarters. We like KepInfra for its highly resilient and predictable cash flows as most of its assets derive their revenues from availability-based payments. With a strong balance sheet, KepInfra's future distributions are also unlikely to be threatened. Its distribution yield of 7.09% provides significant income and is attractive relative to most SGX-listed REITs and business trusts.

Related Article: Looking For Stable Distributions? This Infrastructure Trust Might Interest You!

2. SPH REIT

• Resilient portfolio assets despite a challenging retail environment in Singapore.
• One of the lowest geared REITs, with most of its interest cost fixed in nature.
• The potential acquisition of Seletar Mall a catalyst.

Despite a challenging retail environment in Singapore, SPH REIT's (SGX.SK6U) portfolio, which includes Paragon and Clementi Mall, has proved to be resilient, with both malls at full committed occupancy and achieving positive rental reversions. Its lease expiry profile also appears to be well-staggered. SPH REIT is one of the lowest geared REITs in Singapore, with a gearing ratio of 25.6% and approximately 85.9% of its interest cost fixed in nature. SPH REIT also has the right-of-first-refusal on Seletar Mall, which has full committed occupancy and when acquired, will add further resilience to SPH REIT's portfolio and enhance future distributions.

3. China Mobile

• Mobile market has room for growth as 4G penetration remains low in China.
• Excluding special dividends, dividend yield over next two years at an approximate 4.0%.
• Cash flow generative company with a net cash position.

Not only does it have the largest mobile customer base in China, China Mobile (HKEX.941) has the widest 4G coverage that puts it in pole position to capitalise on China's burgeoning mobile market, which still has room for further growth. While its estimated dividend yield of 5.62% in the current financial year is bolstered by a special dividend, China Mobile's dividend yield over the next two years is forecasted at an approximate 4.0%, which is fairly attractive. Its dividend-paying capacity is also supported by mid-single digit earnings growth, healthy cash flows and a lightly-levered balance sheet.

4. China's State-Owned Commercial Banks

• Formation of bad debts in the Chinese economy has slowed in recent quarters.
• A recovery in net interest margins a potential catalyst for share prices to trend upward.
• Banking sector as whole appears undervalued, trading slightly below its book value.

While there are reasons to be cautious over the future prospects of China's commercial banks, they are by no means doomed to an imminent collapse. Improvements in asset quality stemming from the government's supply-side reforms and a stabilisation in China's economy, as well as a potential recovery in net interest margins, are likely to be potential catalysts for the share prices of China's banks to further trend upward. We prefer Agricultural Bank of China (HKEX.1288) and China Construction Bank (HKEX.939) due to their strong asset quality and liquidity profile.

Related Article: Light At The End Of The Tunnel for China's Banking Sector?

5. ComfortDelGro

• While its taxi business faces headwinds, the public transport segment remains a bright spot.
• Balance sheet strength safeguards shareholders from dividend cuts.
• Share price weakness offers buying opportunity, with attractive dividend yield of 4.89%.

At a forecasted 4.89% this year, ComfortDelGro's (SGX.C52) appetising dividend yield is certainly a head-turner. It has an impressive track record of paying out dividends to its shareholders since 2003, with its pace of dividend increase looking fairly sustainable at the moment. Any fears of a potential dividend cut should be further allayed by ComfortDelGro's robust balance sheet and its cash flow generation prowess. While its taxi business faces a rough and bumpy road ahead, the public transport segment is expected to be a future growth driver that could help pick up some of the slack.

Related Article: ComfortDelGro: A Sustainable Dividend Play For Passive Income

6. Singtel

• Competitive domestic market mitigated by diversified revenue base.
• Likely to benefit from Singapore's Smart Nation move.
• Dividend yield of 4.91% adds to its investment appeal.

The imminent entry of Singapore's fourth telco, TPG, is likely to intensify competition in the domestic mobile market. Given its diversified revenue streams and a stickier customer base, however, Singtel (SGX.Z74) is expected to be the least affected by TPG's entry, with its stakes in other Asian telecom operators helping to mitigate the increased competition in Singapore. Telkomsel, in particular, gives Singtel exposure to Indonesia, one of Asia's fastest-growing telecom markets. As Singapore moves towards its Smart Nation vision, Singtel's cloud computing, cyber-security and data analytics offerings could also stand to benefit.

7. Frasers Centrepoint Limited

• Diversified exposure to residential, commercial and hospitality real estate.
• Recurring income base provides resilience and stability.
• Offers the highest dividend yield amongst Singapore property developers.

Frasers Centrepoint Limited (SGX.TQ5) is one of Singapore's largest property conglomerate by total assets, with diversified exposure to residential, commercial and hospitality real estate that spans Singapore, Australia, UK, China and Southeast Asia. It holds about a third of its assets through its four SGX-listed REITs: Frasers Centrepoint Trust (SGX.J69U), Frasers Commercial Trust (SGX.ND8U), Frasers Hospitality Trust (SGX.ACV) and Frasers Logistics & Industrial Trust (SGX.BUOU). Its resilience and stability is further aided by its recurring income base, which made up about 55% of its EBIT in the nine months ended 30 June 2017. At 4.35%, FCL's dividend yield is also the highest amongst Singapore property developers.

8. Guangdong Investments

• Impressive dividend growth track record that is anchored by its non-cyclical businesses.
• Strong cash flow generation and healthy balance sheet ensure dividend sustainability.
• Future growth to be supplemented by acquisitions and projects that are under construction.

Guangdong Investment (HKEX.270) is a subsidiary of the state-owned Guangdong Holdings and is primarily engaged in water distribution. It also owns other infrastructure assets such as power plants and toll roads in mainland China. As these assets generate stable and consistent cash flows, Guangdong Investments (GDI) is largely insulated from the economic cycle. Given its sound financial position, GDI is also unlikely to slash its dividend anytime soon, with its healthy balance sheet also providing plenty dry powder for future acquisitions. Its estimated 4.28% dividend yield is also fairly high, and will appeal to investors looking for defensive dividend plays.

Related Article: Guangdong Investment: A Rock-Solid 4.28% Dividend Yield!

9. Sheng Siong

• Resilient business model with healthy margins and mass-market positioning.
• Increased warehouse capacity and greater fresh offerings to improve margins.
• Opportunities for new store openings and China expansion to drive future growth.

We like Sheng Siong (SGX.OV8) for its resilient business model, courtesy of its mass-market positioning and healthy margins. Its warehouse expansion, due to be completed in 2018, is expected to add another 10% capacity that will help enhance the company's margins through greater economies of scale and increased fresh food offerings. While Sheng Siong reduced its dividend pay-out ratio recently to pursue growth, its fundamentals remain intact. As HDB puts up new supermarket units for bidding, Sheng Siong is likely to expand its store network, with its China expansion also helping to drive future growth.

10. China Resources Land

• High margins relative to competitors, land reserves mostly in upper tier cities.
• Strong dividend growth supported by healthy cash flows and robust balance sheet.
• Fundamental housing demand is expected to remain resilient in the upper tier cities.

While the implementation of property price curbs by the government is a bane for property developers, we like China Resources Land (HKEX.1109) for its high margins and quality land bank, most of which are located in second-tier cities. It also has a strong dividend growth track record that is supported by healthy cash flows and robust balance sheet. Moreover, fundamental housing demand is expected to remain resilient in the upper-tier cities, underpinned by China's rising population and the shifting demand towards more comfortable housing. Tightened capital controls mean there is likely to be increased demand for residential properties as well.

11. Singapore Exchange

• Ongoing initiative and improved investor sentiment to drive trading volumes.
• Stable dividends supported by strong cash flow generation and healthy balance sheet.
• Strong financial position allows SGX to make synergistic acquisitions to drive future growth.

As the profitability of Singapore Exchange (SGX.S68) is dependent on trading volumes and market activities, its bottom line is likely to be supported by ongoing initiatives to boost market liquidity and improved investor sentiment, both of which are expected to drive future volumes, as well as a healthy IPO market that has seen a recent revival of late. SGX's estimated dividend yield of 4.12% is fairly attractive and is supported by its strong cash flow generation and healthy balance sheet. Moreover, SGX's strong financial position also provides ample dry powder for future acquisitions to supplement growth.

12. Shenzhen Expressway

• Healthy balance sheet with stable cash flows from well-established toll road business.
• Limited competition with first right of refusal on new projects in Shenzhen.
• Branching out into environmental protection business to diversify income.

Shenzhen Expressway (HKEX.548) is the largest toll road operator in Shenzhen, a road congestion hotspot with strong traffic volumes. Its well-established toll roads have brought in stable cash flows and supported its dividend pay-outs over the years. Shenzhen Expressway also maintains a strong financial profile that adds further stability to its estimated 3.97% dividend yield. Moreover, competition is limited and the company enjoys first-right-of-refusal on new projects in Shenzhen, courtesy of its affiliation with the Shenzhen government. Shenzhen Expressway is also branching out into the environmental protection business for its next leg of growth.

13. Keppel Corporation

• Diversified revenue streams to support overall profits.
• Offshore and marine (O&M) segment likely bottomed, have started to turn profitable.
• Property and asset management businesses to see better days ahead.

The outlook for Keppel Corporation (SGX.BN4) is slowly turning positive. While an industry-wide recovery may still take some time, its O&M segment has started to turn profitable. The conglomerate's multiple revenue streams have also supported overall profitability, with stable performances in its property, infrastructure and asset management businesses. We believe the O&M segment is poised for a recovery, with oil companies seemingly able to adapt profitably to low oil prices. Keppel is also looking to take on more non-oil projects to boost its order book and ensure its O&M segment remains relevant.

14. CK Infrastructure Holdings

• Diversified portfolio of defensive infrastructure assets that span eight countries.
• Strong dividend growth track record over past two decades.
• Robust balance sheet to support dividends and future acquisitions.

Since its listing on the Hong Kong stock exchange in 1996, CK Infrastructure (HKEX.1038) has grown into a global infrastructure powerhouse. Its portfolio of infrastructure investments spans eight countries, with a focus on regulated utilities, such as electricity generation, natural gas distribution and water service provision, which tend to generate stable and consistent cash flows. Its robust balance sheet also ensures dividend sustainability and puts CKI on a firm footing to pursue expansion initiatives into different infrastructure assets across electricity, gas, water and transportation to boost future earnings growth.

Related Article: Anchor Your Portfolio With Defensive Income Stocks!

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a NIL position in the abovementioned securities. The analyst who produced this report has positions in ComfortDelGro and Singtel.

The Research Team is part of iFAST Financial Pte Ltd.