2016 dividends hit by oil & gas troubles, lower special payouts

Bigger-than-expected drop at Singapore banks also contributes to 5.2 per cent slide in ordinary and special dividends to S$16.3b

IT'S a tough year for Singapore stock investors and a dip in 2016 dividends will add to the pain.

Latest data indicates that 2016 dividends will fall a bigger than expected 2.7 per cent from a year ago to S$16 billion from S$16.5 billion, according to financial data provider IHS Markit

If special dividends are added to the picture, the fall comes to 5.2 per cent as only three companies are paying them against four in 2015.

Still, while 2016's total payout (ordinary plus special) of S$16.3 billion is S$937 million less than the S$17.2 billion in 2015, it's pretty similar to that of 2014.

And 2014 was a bumper year for special dividends when 10 companies paid a total of almost S$1.2 billion versus 2016's S$275.9 million from three companies.

IHS Markit's dividend calculation is based on what is announced in the 2016 calendar year. So the year-on-year comparison is based on the dividends announced in 2015 (FY14 final + FY15 interim) and dividends in 2016 (FY15 final + FY16 interim).

Its calculation is based on the current composition of MSCI Singapore and FTSE STI (comprising 33 stocks) which includes a newly added Jardine Matheson.

As Singapore companies do away with special dividends, as is the trend elsewhere, investors can hope that growth in ordinary dividends will resume when the economy improves.

The forecast for growth is at the lower end of 1-2 per cent for 2016, and only slightly higher in 2017. Singapore's economy expanded 2.9 per cent in 2014 and 2 per cent in 2015.

In January, IHS Markit had forecast that 2016 dividends would be flattish but was caught out by the sharply lower than expected payouts from the three oil and gas companies, namely Sembcorp Marine, Sembcorp Industries and Keppel Corp, and a bigger fall in banks' dividends.

The three oil and gas companies posted 32.5 per cent lower dividends on average compared to previous expectations, said IHS Markit. The oil and gas sector halved dividends to S$796.5 million compared to the previous corresponding period due to a challenging market environment.

Another negative surprise was the decision by United Overseas Bank to keep FY16 interim dividend flat from a year ago at 35 Singapore cents a share, instead of delivering gradual growth, it said.

"Contrary to our projections that banks' ordinary dividends will be down 0.2 per cent year on year, the actual dividends decreased by 4.1 per cent, mainly due to UOB's decision to keep FY16 interim flat from a year ago," IHS Markit said. UOB also did not pay a special dividend for 2016.

UOB had paid special dividends in the previous four years (2012-2015) culminating in a bumper 20 cents per share or a total of S$400.6 million for its 80th anniversary last year.

The banks, by sector, are the largest dividend contributors to the Singapore stock market, and were responsible for its steady dividend growth from 2012 to 2015.

Banks' progressive dividend payments was behind "Singapore's total dividend growth, especially UOB which takes up 30 per cent of the total sector dividends and contributed to the sector's 15 per cent year-on-year growth in 2015," said Hyeyoung Jo, IHS Markit assistant vice president, APAC dividend forecasting.

The telco sector, the second biggest dividend paymaster, is expected to increase payout by of up to 1.5 per cent. Both StarHub and Singtel are forecast to confirm the upcoming dividends in November, in line with their policies of distributing five cents per share per quarter and 60-75 per cent of earnings respectively.

Real estate dividends fell, by 3.9 per cent as the sector continues to languish with rising rental vacancies in the commercial space, and slower residential sales.

An upside surprise came from the industrial goods and services sector, even though most stocks are expected to deliver single-digit negative growth.

"Total ordinary dividends are projected to be 28 per cent higher than our earlier estimates, primarily due to Jardine Matheson's contribution to the sector following its addition to FTSE STI in September. The company is expected to contribute approximately 32 per cent of the total dividends this year."

Jardine which paid out S$620.1 million in 2016 and S$614.4 million in 2015 replaced Sembcorp Marine in the FTSE STI.

The food and beverage sector will see a nice spike in total dividend due to Thai Beverage PCL's financial year-end change from December to September, effective 2016.

Thai Beverage is expected to distribute S$259.8 million worth of final dividend for the nine-month transitional period ended Sept 30, 2016, said IHS Markit.

The company's dividends declared this year, including FY15 final and FY16 interim dividends announced in February and August respectively, are forecast to be about S$902.2 million, 45 per cent higher than a year ago. Consequently, the food & beverage sector's total dividends are set to grow 27.3 per cent to S$1.5 billion, 18.7 per cent higher than earlier estimates.

The media sector which consists of only one stock - Singapore Press Holdings, which publishes this newspaper - pared dividends by 9.9 per cent this year.

This article was first published on October 27, 2016.
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