After joining of No 4 Telco Player, TPG, the Singapore Telco stocks have been bearish in the last few years, with share price correction ranging from about 20% to 50%. Here is a quick summary based on current share prices:
Telco Stocks Optimism Dividend Yield
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Singtel (SGX: Z74) 29% 4.9%
Starhub (SGX: CC3) 20% 7.1%
M1 (SGX: B2F) 2% 6.4%
TPG (AX: TPM) 17% 1.6%
TPG is a growing Telco stock in Australia, sharing the limited market share of saturated sector of telco stocks in Singapore. Both Starhub and M1 are affected more as the business depends on local Telco, while Singtel is relatively more stable as its business depends on both local and regional Asia Pacific market. M1 is severely affected with share price dropped by more than 50% but the company is still profitable, earning drops by only 25% over the last few years. It shows that Telco stocks in Singapore are over-corrected, initially was driven by news, later by weaker fundamental for Starhub & M1, then driven by the market fear of huge fall in share prices.
As a result, Optimism for Singapore Telco stocks are low, especially for Starhub and M1 which are <25% Optimism. Telco is usually a defensive business, after getting the limited Telco licence issued by government (oligopoly business with limited competitors), investing in infrastructure for Telco, offering services with reasonable prices, the return will be relatively stable with positive monthly cash flow. The disturbance of TPG is just a one-time correction, when the market share is redistributed among the 4 local Telco stocks, all the 4 companies will find their own anchor point in share prices and business earning.
As an investor, there are 2 Investing Strategies for Singapore Telco Stocks
1) Investing for Passive Income (Buy & Hold)
– Stable dividend payment for long term investing
2) Investing for Capital Gains (Buy Low Sell High)
– Buy at discounted price (eg <25% Optimism), selling at bonus price (eg >75% Optimism)
For Passive Income Strategy, Singtel barely fulfills the criteria with 4.9% dividend yield with support of a stable local and regional business, strong sponsor of major shareholder Temasek. The 4.9% dividend yield is comparable with some strong REITs, better than local bank stocks, much higher than 2% return of Singapore Saving Bonds or 1% bank interest rate. A better way of investing for income is to consider Singtel or other dividend stocks at low optimism to maximize the dividend yield, having the potential for capital gains at the same time. An investor also has the choice to consider regional and global Telco stocks which are growing, instead of depending on saturated Singapore Telco business.
However, in the short term, since the Telco stocks are still bearish, it is possible for Telco stocks to have capital loss more than 5% when share prices drops further. Therefore, it is crucial to understand the objective: investing for long term (dividend / capital gains) or trading for medium / short terms. A stock for long term investing may not be suitable for short term trading.
For Capital Gains strategy, both Starhub and M1 fulfill the criteria with Optimism < 25%. In the short term, M1 has better price support than Starhub. Choices of Starhub and M1 should not base on dividend yield of 6-7% because the high yield is due to price drops, not due to earning or dividend growth. Since global stock market is over 80% Optimism, despite Starhub and M1 are at low optimism, the positioning is mainly based on trading to buy low sell high for short to medium terms. The signal for entry depends on the recovery of short term stock prices and business performance. If not, there is a risk of capture the falling knife.
There are many ways to make money in Singapore Telco stocks and global blue chip stocks, learn further from Dr Tee.
