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There has been a lot of news of companies cutting their dividends amid the looming global recession caused by Covid-19.
HSBC Holdings plc (SEHK: 5), which was formerly an investor favourite in Hong Kong, suffered a reputational hit as the bank cancelled its dividend under pressure from UK regulators.
So, understandably, investors ask themselves which companies can be relied upon to pay a dividend in this environment? It’s a fair question given the uncertainty.
Even among real estate investment trusts (REITs), stable payouts are not guaranteed. We’ve seen that with mall operators in Singapore, many of whom slashed their first-quarter distributions to shareholders.
However, here are two Singapore REITs that I’m nearly certain will not be cutting their dividend.
1. Keppel DC REIT
Keppel DC REIT (SGX: AJBU) is the only pure-play data centre REIT listed in Singapore. That’s also what makes it so unique in standing out from its fellow REITs.
Having listed in December 2014, the REIT is riding on the longer-term structural growth of data centres. This is particularly relevant in the time of coronavirus, when data usage is increasing.
It has 18 data centres in eight countries; Singapore, Malaysia, Australia, Germany, Ireland, Italy, the Netherlands and the UK.
Keppel DC’s latest quarterly results (for the first quarter of 2020) were encouraging. Even amid the headwinds of Covid-19, the REIT increased its distribution per unit (DPU) by 8.6% year-on-year to 2.085 Singapore cents.
What’s more, its net property income was up 28.3% year-on-year at S$55.44 million (US$38.86 million) while distributable income surged 32% year-on-year to S$35.78 million.
Finally, it has a relatively low level of gearing – which is a positive in this environment and allows it to make opportunistic acquisitions should they present themselves. Keppel DC’s gearing ratio, as of 31 March 2020, stood at 32.2%, which is well below the regulatory ceiling of 45%.
Keppel DC REIT units currently trade at S$2.35 apiece (at the time of writing), giving it a forward 12-month dividend yield of 3.5%.
Even though that’s a fairly low yield in comparison to other REITs, the safety of that dividend more than makes up for it.
2. Mapletree Logistics Trust
Second on the list is logistics-focused REIT Mapletree Logistics Trust (SGX: M44U). With reputable sponsor Mapletree Investments Pte Ltd backing it, the REIT has a solid pipeline of properties it can acquire off its parent.
On the DPU side, the company has also done well. In its most recent Q4 FY19/20 earnings, for the three months ended 31 March 2020, the REIT actually increased its dividend to shareholders.
It saw its DPU for the period increase 1.2% year-on-year to 2.048 Singapore cents. Encouragingly, its portfolio occupancy also improved to 98.0% from 97.7% in the previous quarter.
Part of its appeal has been its diversified portfolio of 130 properties – covering Singapore, Hong Kong, China, Japan, Australia, Malaysia, South Korea and Vietnam.
That has given the REIT a level of diversification in terms of country risk. But more importantly, its focus on logistics and riding the wave of e-commerce in Asia has provided solid tailwinds amid the current pandemic.
On its financials side, it also has solid fundamentals. Its gearing ratio is higher (than Keppel DC’s) at 39.3% (as of 31 March 2020). However, this is somewhat mitigated by its low weighted average annualised interest rate of 2.5% and robust interest cover ratio of 4.9x.
Mapletree Logistics units are currently trading at S$1.81 and offer investors a 12-month forward yield of 4.5%.
For income investors looking for opportunities during this time, it would be good to remember to focus on the safety of the dividend as well.
With the above two Singapore REITs, I’m confident that they will keep paying their current dividends, and may even increase it this year.
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 Tim Phillips owns shares in Keppel DC REIT and Mapletree Logistics Trust.