Published March 17, 2009

Dividend payouts likely to fall in '09: UBS analysts

They say 'slash & burn' across the board is unlikely, sound positive note about banks

By UMA SHANKARI

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DIVIDEND payouts are declining in Singapore but deep cuts in payouts across the board are not likely, said UBS Investment Research.

'We expect selected sectors and stocks to substantially cut dividends, but overall a 'slash & burn' in dividends across the board appear unlikely,' said the firm in a March 13 report.

The firm said that property stocks and loss-making companies are where investors should have least confidence on dividend forecasts.

By contrast, 'staples' such as Singapore Post, (SingPost) StarHub, MobileOne (M1) and SMRT are stocks where confidence should be highest.

UBS also noted that for the offshore-related stocks, special dividends run the risk of being fully eliminated in 2009.

'This is especially so as management is looking out for acquisition opportunities as the cycle deteriorates,' noted analysts Tan Min Lan and Ling Vey Sern.

In addition, they said that for some stocks with high projected payout ratios (Singapore Technologies Engineering, Singapore Exchange, Venture Corp and Singapore Airlines) the obvious risk lies with potential earnings per share (EPS) disappointment.

The research report also identified Singapore Press Holdings (SPH) as having the biggest risk of cutting payout (to a dividend yield of about 8 per cent) among the 'yield stalwarts'.

'Our view is the recently concluded reporting season provides good insights into management intentions regarding future dividend decisions'. - UBS research report

UBS also warned that for the real estate investment trust (Reit) sector here, the timing and size of potential fund raisings remain a risk to dividend yield forecasts.

However, the firm's analysts also sounded a positive note about companies in one sector here - banks. 'Banks have articulated a desire to signal their financial strength by largely maintaining payout,' UBS noted, adding that a 4-6 per cent dividend yield range looks sustainable for the sector.

To assess dividend sustainability, UBS analysed earnings risks, compared free cashflow (FCF) yields to estimated dividend yields, and calculated what the estimated 2009 dividend yields would be if payouts were cut to the lowest level since 2001.

Meanwhile, for stocks with outstanding corporate bonds, the firm compared the respective dividend yield and bond yield.

'Our view is that the recently concluded reporting season provides good insights into management intentions regarding future dividend decisions,' the note concluded.

For example, in the recently concluded fourth quarter 2008 earnings reporting season, companies that suspended final dividends because of quarterly losses included Hong Leong Finance and Parkway Holdings.

And companies that eliminated or significantly cut 'special dividends' included CapitaLand, City Developments, Keppel Corp, Sembcorp Industries, Sembcorp Marine and ComfortDelGro.

Other companies, such as NOL and CDL Hospitality Trusts, revised stated dividend policies.

However, some other firms gave their investors reasons to be hopeful.

Companies that reiterated their commitments to a payout ratio include ST Engineering (100 per cent), CapitaMall Trust (100 per cent), CapitaCommercial Trust (100 per cent), SingPost (80-90 per cent, subject to a minimum of five cents), M1 (80 per cent), OCBC (45 per cent) and UOB (40-60 per cent).

And there were also companies with no stated payout ratio, but where the management communicated a strong intention to maintain or largely maintain the dividend per unit or payout.

These included SMRT, StarHub, DBS, Venture Corp and Parkway Holdings.