Love Free Money? Buy This Singapore Dividend Stock

July 13, 2021

Dividends give investors something that we all dream of – free money. That’s because, instead of taking all their profits, companies instead return it to shareholders in the form of dividend payments.

Beyond receiving money just for merely owning a stock, there are also many other reasons to own stocks that pay you dividends.

In fact, in Singapore, dividends make up a large part of your total return (so price change + reinvested dividends) from the stock market.

For example, the Straits Times Index over the past 20 years has returned a total of 195.6% to investors. Yet, only 87% of that increase came from the actual price change. The other 108% represents the return from the dividends received and then reinvested.

So, when we look at identifying potential dividend stocks, we want to buy those that have sustainable payouts and which don’t have artificially high dividend yields.

With that, here’s one rock-solid Singapore dividend stock that will nearly certainly keep giving investors income for years ahead.

Singapore’s broadband utility

For broadband fibre installations, the company to call in Singapore is Netlink NBN Trust (SGX: CJLU). The company owns a nationwide fibre network that supports Singapore’s Next Generation Nationwide Broadband Network (or “Next Gen NBN”).

So, whenever you’re installing a broadband connection in a new home (using whatever major telco provider), you’ll also realise that Netlink will come by to check that your place is connected to the Next Gen NBN.

In essence, Netlink has a solid, recurring business via three types of customers; residential, commercial and non-building address point (NBAP).

All this supports Netlink’s dividend yield of around 5.2%, which has been consistently stable for the past few years.

Steady during Covid-19

Unsurprisingly, perhaps, Netlink saw its business remain unaffected throughout the past year or so, during the whole Covid-19 pandemic.

For its latest financial year ending 31 March 2021 (FY21), Netlink’s revenue dropped marginally by 0.5% year-on-year to S$368.5 million.

Meanwhile, its EBITDA rose 4.6% year-on-year to S$270.2 million – mainly due to lower write-off costs as well as operation and maintenance costs. That gave Netlink it an impressive EBITDA margin of 73.3%, which supports its generous dividend.

Its distribution per unit (DPU) for the whole year was 5.08 Singapore cents, up 0.6% year-on-year.

Beneficiary of 5G

Netlink’s future business also seems secure given the addition of thousands of new homes per year in Singapore, all of which need fibre broadband connections.

With its NBAPs also rising, and Singapore’s “Smart Nation” initiative continuing to gain traction, this portion of the business should see stellar growth over the coming years.

That’s also without mentioning the nationwide rollout of 5G connectivity, which will require Netlink to work with telco providers on their 5G infrastructure needs.

Dividends year after year

Given Netlink’s stable business and impressive profit margins, it’s tailor-made to be a dividend machine. However, don’t expect it to deliver stellar returns in terms of its price growth.

Over the past year, Netlink’s unit price is actually down 1% while year-to-date it’s flat. However, that’s a much more preferable scenario for a dividend stock than the shares of telco providers.

However, you know what you’re getting with Netlink NBN Trust and, for Singapore dividend investors, its dividend return is a much better choice versus having your cash sitting in a savings account.

Disclaimer: ProsperUs Head of Content Tim Phillips doesn’t own shares of any companies mentioned.

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.

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