Singapore Exchange Limited Review: Should you buy this SGX Dividend?

Profile

Singapore Exchange Limited(S68: SGX) is a listed international exchange in Singapore since 2000. It is a merger holding company created by the Stock Exchange of Singapore, Singapore International Monetary Exchange, and Securities Clearing and Computer Services Pte Limited(now canceled) in 1999.

Singapore Exchange provides equities, fixed income, currency, commodities, table’s data derivatives trading activities, and related businesses. It is the third listed exchange in the Asia Pacific after Australia and Hong Kong. The market cap of the Singapore Exchange is S$10.8 billion. The Singapore Exchange provides more than half of listed companies coming from abroad.

Dividend Yield for the past five years

The following table is the dividend payment details for the Singapore Exchange over the past five years:

Singapore Exchange Limited seeks to pay dividends in a sustainable and long-term growing way from the table’s data. 

The dividend paid-outs each time increase in a gradual step each year. Despite the pandemic, the significant 5% increase in the recent dividend payout shows the management’s confidence in the future. 

Upcoming Dividend Payment and Current Share Price

Besides the proposed dividend schedule in the next annual general meeting on Oct 7, 2021, the management plans to initiate a “scrip dividend scheme.” The scheme allows dividend holders to re-invest in the company’s shares and participate in the company’s mid-to-long term growth.

As of writing, Singapore Exchange is typically moving +/- 3% a week, in the past three months and is not significantly volatile compared to the rest of the SGX stocks.  The volatility over time of 3% has been stable for the past years. 

Financial Position

Singapore Exchange spends a lot on capital expenditures to increase competitiveness this year. The exchange spends S$51 million on infrastructures to upgrade its services.

For instance, the company will digitalize retail investor services, upgrade Titan OTC Platform, and set up infrastructures for BidFX. Next year, Singapore Exchange plans to spend S$60-65 million on digitizing services like Fixed Income, FX markets, and Partnership Initiatives services. The exchange bought the Maxxtrader system to upgrade its capability of serving clients in providing security trading activities.

The debt leverage has increased as the company issues convertible bonds to support project expansions and strengthen operating performance in the future. The financial position is still solid as the debt is less than 60% of the total assets. The management is confident the investments will return more than spent.

Dividend Growth Potential

The company has increased the dividend payout by 5% from the last. The management is confident of the performance in the years to come. They’ve done the following:

• Make acquisitions and upgrade systems like the MaxxTrader, Scientific Beta(SB), and BidFX to increase international competitiveness.
• Forecast the pandemic is coming to an end shortly.
• Establish a scrip dividend scheme to encourage mid-term growth. The exchange will announce additional content concerning the plan.

The performance for 2021 is less encouraging than last year due to the health crisis. The company is optimistic about the sustainable and growing dividend policy for its shareholders.

The company seeks to be a leader in multi markets like equities, fixed income, derivatives, commodities, FXs.

What are the risks?

Singapore exchange may face four main risks hindering its dividend policy:

1. Interest rate: The company borrows more in the fiscal year. It may have to pay more interest if the loan interest increases. Thus, it may affect the dividend policy.
   
2. The pandemic crisis: If the crisis deepens and prolongs, or business activities cannot recover to the pre-pandemic level in a short time, the company may have to cut the dividend rate.
3. Policies: The current and proposed dividend policies: may increase the financial pressure on the company’s operational and business planning discretion.

The proposed dividend scheme may not be as popular as cash dividends. 

1. The exchange may be vulnerable to external competitors like New York Stock Exchange, Hong Kong Stock Exchange. New services and innovative products offered by other exchanges like cryptocurrencies trading services may eat into and take away some businesses from the exchange.

Our Verdict

We are optimistic about the outlook of the Singapore Exchange concerning its dividend policy in the following ways:

• Regional competitiveness: The Singapore Exchange is one of few international financial centers in the Indo-Pacific region. In the future, the area will be a focus for leading global economic development. The exchange will play a vital part in financing and investing activities.
• The management’s emphasis on a sustainable and growing dividend policy will continue to guide the company’s business planning. Shareholders are about to benefit.
• The dividend re-investing scheme is to help the company to expand and develop. The company will likely benefit from consolidating and expanding shareholder bases.
• The scrip dividend scheme aims to help generate more resources to develop projects if it becomes popular among current and new investors. Further information is necessary for analysis.

Our Key Takeaways:

1. The management of the Singapore Exchange will continue to keep the dividend policy in a sustainable and growing manner.
2. A scrip dividend policy seeks to recruit investors on the way to mid-term growth. So. the company may be in a better position concerning resources to expand the business.
3. Investors should be alert to the information about the pandemic, interest rate changes, and external competition. They may cause pressure on the company’s operation and dividend policy.

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