3 Best Dividend Stocks to Buy Through Your CPFIS

Invest - What is the CPF Investment Scheme

Tim Phillips

September 20, 2022

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Investors everywhere, including Singapore, should be thinking about generating returns from the stock market. That’s particularly true when talking about retirement.

That’s because, over the long term, stocks are one of the best ways to build wealth. In Singapore, we’re fortunate enough to have a very solid retirement system in the CPF.

Thankfully, the CPF also provides us with avenues to grow our retirement pot via investing. And when we invest for retirement, generating passive income streams via dividends should be a key goal.

Once you have sufficient funds in your CPF Ordinary Account (OA) – at least S$20,000 – or CPF Special Account (SA) – at least S$40,000 – then individuals are permitted to invest with these funds.

That will be done via the CPF Investment Scheme (CPFIS). However, if you want to buy individual stocks, there is a limit of only being able to do so with 35% of investible savings in your CPFIS-OA.

So, with that, here are three best-in-class dividend stocks that Singaporeans can buy via their CPFIS.

1. Sembcorp Industries

The transition to clean and renewable energy is a megatrend that is going to take decades to play out. With Sembcorp Industries Limited (SGX: U96), investors have the opportunity to gain exposure to this theme in Singapore’s local stock market.

As I’ve written about previously, Sembcorp Industries in on a mission to transition its power-generating portfolio from “brown to green”.

The latest move it made was agreeing to sell two India-based coal-fired power plants that it owns. Meanwhile, its latest H1 2022 earnings saw Sembcorp Industries notch up EBITDA of S$865 million, up 35% year-on-year.

Net profit (before exceptional items) for the period also surged by 94% year-on-year to S$490 million.

While a fair chunk of this came from its conventional energy segment, the net profit from its renewable business is growing fast (see below).

Sembcorp Industries renewables H1 2022 profit

Source: Sembcorp Industries H1 2022 earnings presentation

Sembcorp Industries also doubled its dividend per share (DPS) for H1 2022 to 4 Singapore cents, while management hinted it could pay out a special dividend for FY2022.

2. DBS Group

For those of us who think higher interest rates are here to stay, then it’s clear that the big Singapore banks will be key beneficiaries.

And likely the biggest winner from that trend will be DBS Group Holdings Ltd (SGX: D05). As Singapore’s largest bank, it also has the most sensitivity to rising interest rates from the US Federal Reserve (Fed).

In fact, in its latest Q2 and H1 2022 earnings, DBS estimated that for every 1 basis point (bp) increase in the Fed Funds rate then its own net interest income (NII) will increase by S$18-20 million.

Earnings from DBS for the period also demonstrated how solid its franchise is, with its Q2 2022 net profit up 7% year-on-year to S$1.82 billion.

With growth opportunities in both India and Taiwan – via its acquisition of Citigroup Inc’s (NYSE: C) retail banking franchise – DBS is set up well for continued strength.

Finally, with a sustainable quarterly dividend of 36 Singapore cents that’s paid out every three months, DBS shares currently yield a reasonable 4.3%.

3. Frasers Logistics & Commercial Trust

Finally, we have a Singapore-listed logistics REIT in Frasers Logistics & Commercial Trust (SGX: BUOU), otherwise known as FLCT.

Despite its name, 100 of FLCT’s 105 properties are in the logistics and industrial sector. With a total portfolio value of S$6.5 billion and an occupancy rate of 96.5%, FLCT’s portfolio gives investors exposure to the global logistics market.

That’s mainly because the REIT owns properties across Australia, Singapore, Germany, the Netherlands, and the UK.

It’s also been very acquisitive in order to grow its portfolio, spending S$290.5 million on five value-accretive properties in its latest Q3 FY2022.

With a gearing ratio of only 29.2% and a low cost of borrowing of 1.6% (as of 30 June 2022), FLCT also has the debt headroom to further grow its logistics portfolio if it so wishes.

Providing investors with a 12-month forward dividend yield of 5.6%, FLCT offers up both regular income along with a robust and large portfolio of logistics properties.

Setting up retirement with dividend income

Ensuring that we utilise our CPFIS accordingly, individual investors should look to use the investment scheme of our CPF to buy into strong businesses.

These businesses will ideally also pay stable, and rising, dividends. That’s so that they can continue to pay out passive income when we eventually retire.

Given the strong long-term tailwinds for Sembcorp Industries, DBS and Frasers Logistics & Commercial Trust, all three look like solid additions to any CPFIS account.

Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips owns shares in Sembcorp Industries Limited and DBS Group Holdings Ltd.

About the Author: Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth. He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer. In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.