Why Hong Leong Finance was Chosen for my Dividend Portfolio

Other than REITs, banks are definitely the next top choice for Dividend Investing in SGX.  This is especially so in the current rising rates environment, where the banks and financial institutions may get to benefit from the higher rates.  The top 3 local banks are Development Bank of Singapore (DBS), United Overseas Bank (UOB) and Oversea-Chinese Banking Corporation (OCBC).  Being a “traditional” dividend investor (in the SGX market), I would like to have all my shares kept under my name in my CDP account, thus I did all my buy and sell via Lim and Tan Brokerage for my Singapore shares instead of the popular low cost brokerages out there like Moo moo, Tiger or Interactive Brokers (but I am using them for US shares).   What this means is, the minimum number of shares I need to buy is 100 shares for every order.  With share prices of DBS, UOB and OCBC at approximately SGD 26.40, SGD 27.43 and SGD 12.93 at the beginning of 2018, my top choice based on affordability will be OCBC.  After accumulating shares of OCBC, I was looking for another suitable Bank to diversify.  As DBS and UOB are out of my reach, I started searching through the list of companies under Banking and Investment Services instead (Yes, I believe this sounds like penny wise, pound foolish to not just go with DBS or UOB, but this is just for me...).

Using the stock screener, I was looking for:

1)    Company with Market Capitalization more than SGD 1B.

2)    Dividend yield between 4.5%-5% (In my opinion, high yield sounds appealing, but yield traps are not to be forgotten).

3)    Stable share price.

And that's where I found Hong Leong Finance (HLF).

HLF has evolved from a small and medium enterprise (SME) in 1961 to become Singapore's largest finance company with a distribution network of 28 branches.  Listed on SGX in 1974, HLF is the financial services arm of the Hong Leong Group Singapore.  HLF's core business involves taking deposits and savings from the public and providing financing solutions and services that include corporate and consumer loans, government assistance for SMEs, corporate finance and advisory services.

The Chairman and Executive Director of HLF is Mr Kwek Leng Beng, who is also the Chairman of City Developments Limited (CDL).  With a well-known businessman and billionaire helming the company, I believe HLF is in a stable and good position financially (and Hong Leong Bank is one of the top 5 local Banks in Malaysia).

Looking at the historical share price of HLF for the past 10 years above, we can also see that it is a relatively stable stock, fluctuating between SGD 2.25 to SGD 2.75.  This means that any price below SGD 2.50 may be a relatively good price to DCA into its shares.  Moreover, with its dividends increasing back to SGD 0.12 per annum since the dividend cut during the pandemic period, it gives a decent yield of approximately 4.8%.  With steady share price and dividends, I am comfortable to keep it in my portfolio.  Without the patience to wait, I started buying the shares in 2019, which is unfortunately at a high price.  Since then, I have gradually DCA into its shares, and reinvesting all dividends collected back into the company.  To date, my average holding price of HLF is estimated to be below SGD 2.30, thus I am already in the green.  Coincidentally, my latest refinancing is also done with Hong Leong Finance.  This means that I am kind of getting "cash-back for my mortgage interest" through dividends, which is definitely nice!

However, do note that its trading volume and interest is low, so if one is in urgent need to sell shares to raise cash, HLF may not be the best stock to hold.  

All in all, kindly note that all the above are my own thoughts and decisions.  None of the above act as any form of recommendations to buy, hold of sell HLF's shares.  Do your own due diligence when it comes to investing, as no one knows how to handle your own money better than yourself.  For me personally, HLF definitely brings me one step closer to my financial goals.  Barista FIRE, here I come...! 

Comments

  1. Hi
    I have held a small position in this stock that I bought into prepandemic, am just under water despite dividends. This is not a great stock overall and I will divest soon when I break even and reinvest the proceeds into the traditional banks, the banks will provide the same dividend with definite scope for capital appreciation
    Overall, not a great investment proposition as their CASA accounts are barely good enough to provide them cheap funding
    Regards
    Garudadri

    ReplyDelete
    Replies
    1. Hi Garudadri, thank you for sharing. I believe Hong Leong Finance operates differently as their main target audience is more on SMEs rather than retail customers, so CASA accounts are not their main priority. Nonetheless, I understand where you are coming from. Cheers!

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