Stocks that offer dividend yields higher than fixed deposits

DUE to the current low interest rate environment, a lot of investors may be wondering whether there are investments that can provide returns higher than fixed deposit (FD) rates.

Despite the current high stock prices on Bursa Malaysia, there are still many stocks providing dividend yields higher than the current FD rate of about 2% to 2.5%.

Based on our estimation, the average dividend yield for all stocks on Bursa Malaysia is about 3.5%, which is higher than the current 12-month FD rate of 2.5%.

Nevertheless, investors need to have critical financial information, adequate investment skills as well as be willing to spend time researching information.

There are many research companies providing information on Main Market companies on Bursa Malaysia based on their highest dividend yield, lowest price-earnings ratio (PER) as well as lowest price-to-book ratio (P/BV).

For serious investors, they need to familiarise themselves with these terms. In addition, investors need to know how to analyse the information.

In this article, we will explain how to use the dividend yield ranking. The table shows the top 10 Main Market companies according to highest prospective dividend yield.

Prospective dividend yield is calculated by taking the market price divided by the estimated current year dividend per share (DPS).

For example, Hektar Real Estate Investment Trust (Hektar REIT) shows a prospective dividend yield of 9.53%, which was computed based on the market price of RM1.07 (as at Oct 18) and estimated 2009 DPS of 10.2 sen.

The latest actual dividend yield of 10.01% for Hektar REIT was computed based on the same market price but divided by last year’s actual DPS of 10.71 sen.

Even though the dividend yield for 2009 is anticipated to decline slightly to 9.53% from 10.01% in the previous year, it is still much higher than the current FD rate of 2.5%.

However, investors need to be careful as some of the high dividend yields may be due to one-off special dividend payments.

The companies may not repeat these dividend payments in the following year. Besides, we need to make sure that the latest PER is lower than the overall market PER.

This is to prevent us from paying too high a price against its earnings level. For Hektar REIT, its latest actual PER of 9.45 times is lower than the current market PER of about 11 to 12 times.

This method does not require a lot of time to carry out research. Once we identify good fundamental companies that are paying high dividends every year, we only need to monitor them.

We may not even need to sell the stocks for a long period of time if the companies continue to reward good dividend yields that are higher than FD rates.

Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.

Thestar