6th Jan 2014
PETALING JAYA: The past 12 months have seen a great run for the stock market, with the FTSE Bursa Malaysia KL Composite Index (FBM KLCI) registering more than 10% gain for the year.
But the surge in blue chip stock prices have pushed dividend yield for quality companies down to their lowest level since 2009.
A quick check showed that Malayan Banking Bhd’s dividend yield is the highest at 5.57% among the top 30 counters that make up the FBM KLCI, followed by Maxis Bhd and British American Tobacco (M) Bhd with commendable 4.5% yields for both.
This is higher compared with the index’s dividend yield of 3.28%, according to Bloomberg data.
Yield play has lost some of its appeal, with prices of real estate investment trusts (REITs) taking a hit in recent months amid a switch to the bond market
.
CIMB Research in a recent note predicted the yield of the benchmark 10-year Malaysian Government Securities (MGS) at between 4.2% and 4.25% this year.
Analysts said yield-hungry stock investors were better off chasing smaller companies with consistent generous payouts.
“Blue chips might appeal to institutional investors as they manage a large pool of funds and would prefer fundamentally strong stocks to secure a fixed income flow, but for individual investors, a good stockpicking strategy would be preferred as there are still jewels with growth potential out there, in terms of capital appreciation,” said a fund manager.
He highlighted mid-cap stocks like Prestariang Bhd, Wellcall Holdings Bhd and Pantech Bhd which last year enjoyed a good run.
“Prestariang was traded at about RM1.20 in January last year, and subsequently all the way up to the range of RM2.80 now on the back of a steady flow of contracts.”
He said high-yielding companies like wooden picture frame manufacturer Classic Scenic Bhd was seldom on the radar of investors, but still had a yield of about 10.7%, based on last year’s dividends announced.
“Institutions would not be attracted to these stocks due to certain factors like the inability to take up a substantial position in the company and also the liquidity issue. But for individuals, if you’re a long-term investor, the liquidity of a stock would not be much of a concern for a dividend play,” he said.
For risk-averse investors, REIT counters could also be considered, with the current price range of Malaysian REITs seen as an opportunity to buy in following the recent selldown amid a weak office rental outlook.
HwangDBS Vickers Research analyst Chin Jin Han upgraded Axis REIT to a buy yesterday following the recent selldown.
“Axis REIT’s unit price has fallen 14% since November 2013 on the back of a thinning distribution yield spread over the 10-year MGS yield which has risen by 0.50 basis point. Despite the drop in REIT stocks, the selldown is unjustified, as Axis REIT is shielded from higher electricity tariffs (we estimate only 20% of total property expenses is electricity expense) and assessment tax (its assets are not in Kuala Lumpur),” Chin said.
He said Axis REIT still had a solid asset pipeline, negotiating for RM317mil worth of properties at 7%-8% rental yields.
Hong Leong Investment Bank Research analyst Sean Lim in a report dated Jan 3, said although the spread between Malaysian REITS and MGS had been consistently narrowing due to abundant liquidity hunting for yield, trends were now reversing with recent data showing expansion in yield spreads going forward.
“Notwithstanding the above factors, we still foresee earnings remaining essentially intact, hence we make no changes to our earnings forecasts. Given the headwinds, we do not have any ‘buy’ calls for M-REITs. However, for investors who still desire exposure, we prefer IGB REIT and CMMT for their pure play exposure to the retail segment,” he said.
[Source]
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