The Massive Rebalancing and Revamping To My SGX Dividend Portfolio

As per the previous post, the 32% decline in dividends from Hong Leong Finance triggered me to relook the stability of the annual dividends.  Thus I decided to divest a part of the shares in my holding and include more dividend powerhouses into my portfolio to reduce the weightage of dividends from individual shares.  As mentioned, I have decided to include the two remaining Singapore banks into my portfolio, namely United Overseas Bank (UOB) and Development Bank of Singapore (DBS).  However, due to the limitations of capital, I will do this in stages.  In stage one, before the XD date, I will slowly nibble some UOB shares, so that I will be eligible to receive the half-yearly dividends.  In stage two, I will buy into DBS shares after XD (hopefully the price decline is more than the dividends and bonus shares payout- no guarantees on that).

So what exactly am I doing and why?

The shares that I am partially divesting is Singapore Technologies Engineering (STE).  Surprise surprise, I did not divest HLF but instead partly divested STE.  STE has been in my portfolio since the start of my current strategy in late 2017, and in fact, I explained in a post in 2022 why STE is the largest non-REIT holding in my portfolio.  Indeed, STE has been a consistent dividend payer over these past 7 years.  They had increased their annual dividends from 15 cents to 16 cents, and changed their dividend payout frequency from semi-annually to quarterly, which helps to make cashflow more consistent and less lumpy.  However, as AK71 has always stressed about STE, their debt levels has risen to an uncomfortably high levels due to the acquisition of Transcore in 2021.  In FY2022, its debt/EBITA (earnings before interest, taxes and amortization) has swelled to a concerning 5.2x.

However, on a positive note, the balance sheet has improved slightly for FY2023, and its debt/EBITA has declined slightly to 4.2x.  This is good news, as it shows that the management is putting effort to managing its debt, on top of growing the business.  I am happy with the performance however, I think this is also a good time for me to scale down its weightage in my portfolio.  One main reason is that I am still a little uncomfortable in the debt levels, and the share price of STE has risen recently to about SGD 4.00, relatively close to its all time high SGD 4.56 last reached in 2013, or recent high of SGD 4.42 reached in 2020.  Therefore, I think it is a good time for me to sell part of my holdings, to recycle the capital to other investments.  With this move, dividend yield for STE will rise to above 5.5% on cost basis, which is a comfortable yield for me to hold on to this investment long term.

With the capital from the sale of STE, coupled with more capital injection, I decided to add United Overseas Bank (UOB) into my portfolio first instead of Development Bank of Singapore (DBS).  This decision is made due to the following reasons:

1)     After the release of their full year results, UOB experienced a sharp drop in share price by about 4.4% within a few days, compared to DBS which only experienced a smaller decline in share price by about 2%.  From a buyer perspective, I will think this is a better time to buy shares of UOB first, which gave a yield of about 6%, compared to DBS, which gave a lower yield of about 5.8% yield (excluding the bonus share issue), both with the same payout ratio.  Currently, the share price of UOB has risen above SGD 29.00, and that means yield has fallen below 6%.  Probably I may need to wait till XD before I can add more shares.

2)     More importantly, due to the limited funds, I can only buy the shares of one of the banks first.  As such UOB is a better choice because buying UOB now makes me eligible for the semi-annually final dividend of 85 cents distributed by UOB.  On the flip side, missing out on the quarterly dividends of DBS seems to be a smaller loss (disregarding the bonus issue) because if the shares are purchased after XD, I will still be eligible for the next quarterly dividends (Yes, I may regret my decision due to my short term view, because share price of DBS has flew up the sky, which may mean after XD, price may not retreat to around SGD 30 levels).

So, what about Hong Leong Finance, since it is the one that experiences a 32% decline in dividends.  Personally, I will continue to hold on to my shares for now, because Hong Leong Finance is not a popular retail stock, thus its shareholders are happy with holding it as a bond-like equity.  Even with the decline in dividends, the share price has only fallen by about 3.2% over the weeks, signifying the muted volatility of this share.  On a cost basis, despite the 32% decline in dividends, it is still yielding around 6% yield for me.  Therefore, unless there are better opportunities out there, I will not sell any shares to recycle the capital for now.

With this revamping of my portfolio, Oversea-Chinese Banking Corporation has emerged to be the largest non-REIT holding in my portfolio on capital basis, and the largest overall holding in my portfolio on market value basis.  After XD date, I will also add DBS into my portfolio.  The addition of UOB and DBS into my portfolio will also mean an increase in portfolio allocation to non-REITs as well as a corresponding decline in the allocation to REITs.  However, I am not selling any of my shares in REITs now as their share prices are under tremendous pressure for now.  I will continue to hold on to them, while collecting dividends at the meantime.  Looking forward to the day where interest rate cuts are officially announced, with inflation under control at around 2% levels.  Meanwhile, Barista FIRE, here I come...!