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The protests in Hong Kong have become less disruptive since the November election. These dividend stocks will benefit if the trend continues.
Although they remain ongoing, there are signs that the worst of the Hong Kong protests might be over.
Ever since the local elections on November 24 when the pro-government politicians lost, the intensity and frequency of the mass protests have been dialed down a notch. Rather than taking matters into the streets, it seems that many protestors are content to see how their newly elected officials do in government.
The protests have negatively affected commerce across Hong Kong due to many tourists avoiding the city. Due to the protests and the trade tension between China and the US, Hong Kong fell into a technical recession in the third quarter with GDP declining by 3.2% on a seasonally adjusted basis.
Given that many stocks fell caused by the protests, it stands to reason that many stocks might benefit if the protests end.
Some dividend stocks that might benefit if the protests end include MTR Corporation Limited (SEHK:66), Link REIT(SEHK: 823), Hang Seng Bank (SEHK:0011), and Hong Kong Exchanges and Clearing Limited (SEHK: 388). Let’s analyze further.
MTR Corporation Limited
Recently MTR Corporation Limited gave an investor update on how the protests have affected its operations. According to the subway operator, MTR’s patronage fell around 27% year-on-year in October and November when the protests were disruptive. If the protests end, many believe MTR’s ridership numbers will rebound rather quickly due to the subway system’s essential nature.
In terms of financial costs of the social unrest on its operations, MTR has suffered around HK$1.6 billion in damage for the year ending 31 December 2019. To put the provisional number in perspective, MTR reported HK$11.26 billion in profit attributable to shareholders arising from underlying businesses in 2018. The subway paid an ordinary dividend of HK$7.36 billion that year. If the protests end and MTR’s ridership rebounds, MTR won’t have to take those big provisional charges every year and MTR will have more cash flow to support or raise its dividend.
MTR has a forward dividend per share (DPS) of HK$1.20, which gives it a forward yield of 2.61% at the current price.
Link REIT is one of the largest REITS in Asia. Shares of the REIT have fallen from HK$98 per share in early June when the protests really gathered momentum to around HK$81.
Given that two-thirds of Link REIT’s portfolio by value is comprised of retail properties in Hong Kong and retail sales in the city have declined due to the drop in tourism, the market has become more cautious. If the protests end and tourism rebounds, the financial condition of many retailers that occupy Link REIT buildings will improve and confidence in Link REIT’s future cash flows will return.Link REIT currently has a forward dividend per share of HK$2.83 or a forward yield of around 3.5% at current prices.
Hang Seng Bank
Since the protests really gathered steam in June, Hang Seng Bank shares have fallen from around HK$194 to HK$162. Although they might not recover as quickly due to Hong Kong entering a technical recession, Hang Seng Bank’s fundamentals will benefit. If the protests end, many of Hang Seng Bank’s merchant customers will have more business from tourists and Hang Seng Bank will have an easier time making profitable loans. Foreign companies will be less likely to leave Hong Kong and take their corporate banking business elsewhere.
As far as dividends go, Hang Seng Bank has been dependable over the past five years with the bank raising the ordinary dividend per share every year from 2014 to 2018.
Hang Seng Bank dividends $HK
|Earnings per share||7.91||14.22||8.30||10.30||12.48|
|Ordinary Dividend per share||5.60||5.70||6.10||6.70||7.50|
For Hang Seng Bank’s 2019 interim period, the bank raised its dividend again, with a total dividend per share of HK$2.80 for the first half of 2019 versus the total dividend per share of HK$2.60 for the first half of 2018. Hang Seng Bank’s earnings per share also rose 5% year-on-year.
If the protests end, Hang Seng Bank’s dividend will become even more dependable.
Hong Kong Exchanges and Clearing Limited
If the protests end or become less disruptive, Hong Kong will become more attractive to foreign capital or companies that want to list in Greater China. If more foreign capital goes into Hong Kong, Hong Kong Exchanges and Clearing Limited or simply, HKEX, will get more trading business. HKEX has already benefited from Alibaba coming home. Other Chinese companies that listed overseas might follow Alibaba’s footsteps if the protests end. Currently, HKEX pays a forward dividend yield of around 2.9% at current prices.
If the protests end, the dividends of MTR, Link REIT, Hang Seng Bank, and Hong Kong Exchanges and Clearing limited will get safer as business returns back more towards normal.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Jay Yao doesn’t own shares in any companies mentioned.