A New Addition Into My Dividend Portfolio: HRNetGroup

Earlier this year, I made two new additions to my dividend portfolio, namely Riverstone and Kimly, as part of my ongoing effort to diversify my income stream with consistent dividend payers.  Recently, I am adding a new name to that list: HRNet Group (SGX: CHZ).

This decision came after careful thought, and more importantly, as a tactical reallocation of funds.  I recently did a partial divestment of Singapore Technologies Engineering (STE), a strong blue-chip stock that I still like and hold.  However, with its share price shooting up significantly this year, the allocation based on market value to STE is growing too large for my comfort, and the dividend yield has already compressed to below 2.4% at one point, which no longer justifies a full position for someone like me who prioritizes dividend yield as part of my Barista FIRE journey.

Why I Sold Part of STE

I did not sell out of STE completely.  It remains a core holding in my portfolio, and still the largest allocation based on market value.  However with the recent strong rally, I felt it was the right time to trim a small portion and lock in profits.  With STI climbing to new highs, I am cautious about valuations.  STE now trades at a premium, and the dividend yield has become less attractive for income-focused investors like myself.  From a capital preservation and income generation angle, it made sense to rotate the funds into something with better dividend yield and growth potential.

Why I Chose HRNet Group

After reviewing several counters, HRNet Group stood out for the following reasons:

Pros:

1)     Strong Balance Sheet (Net Cash Position)

HRNet carries no debt and maintains a healthy cash pile.  This gives it resilience in downturns and optionality for future acquisitions, expansion, or dividend payout increases.

2)     Stable Cash Flow, Even During COVID

Despite operating in the recruitment and staffing industry, which can be cyclical, HRNet stayed profitable even during the COVID period, showing it has a robust and defensive business model.

3)     Consistent Dividend Payout

The company has been paying out dividends consistently, with a payout ratio that is sustainable and backed by actual earnings.  Based on current price levels, the yield is attractive at around 5.5%, with room for growth if earnings improve.

4)     Asset-Light, Scalable Business Model

As a recruitment agency, HRNet does not require heavy capex.  It is a scalable business that benefits from economic recoveries and structural shifts in workforce trends (example gig economy, outsourcing, flexible staffing).

5)     Founder-Led and Shareholder-Aligned

Founders and insiders still hold significant stakes (Simco Global Ltd, the controlling parent entity holding about 77.44% majority stake), which helps align management interests with shareholders.  They also do regular share buybacks, a good sign that management believes in the company’s value.

6)     Complement to My Current Dividend Portfolio

HRNet provides sector diversification.  My portfolio has exposure to banks, glove manufacturing, F&B, blue-chip companies in defense and transport, and REITs.  HRNet adds exposure to human capital and employment services, which is relatively uncorrelated to the others.

Some Considerations (Cons):

1)     Cyclicality Risk

The recruitment industry is tied to economic conditions.  In a downturn, demand for permanent staffing could drop, though HRNet’s temp staffing business helps buffer that impact.

2)     Slow Earnings Growth

While stable, HRNet’s earnings growth has been modest.  Investors seeking rapid capital gains might find this stock less appealing.

 

3)     Limited Analyst Coverage

Being a mid-cap with low trading volume, HRNet is not heavily covered in the market.  This may lead to pricing inefficiencies but also makes it less visible to big funds.

How HRNet Group Fits Into My Strategy

I do not just buy dividend stocks for high yield.  Instead, I buy them for sustainable, growing income and portfolio resilience.  HRNet Group ticks the right boxes for me.  The proceeds from my partial sale from STE are now working harder for me at a better yield, while also giving me added diversification in a defensive business model.

At this stage of my FIRE journey, I continue to rebalance actively but cautiously.  As valuations get richer across the market, I look for underappreciated gems with good fundamentals, decent yield, and strong balance sheets.  HRNet may not be flashy, but it is solid in net cash position, and in this market, that is exactly what I am looking for.

Let’s see how this new addition plays out in the months and years ahead for my portfolio.  Barista FIRE, here I come...!