Stock Prices may be down..

WITH all the nosediving in stock prices lately, there is one set of numbers which has shot up - the dividend yields on many battered stocks. This is, of course, because a given dividend payout is a larger percentage yield of a low share price than a high one.

And if a share price has plunged, as many counters have, then its dividend yield might rise to unusually high levels.

Real estate investment trusts (Reits), as well as shipping trusts, are delivering dividend yields of more than 20 per cent. The payouts of Reits are known as distribution per unit.

First Ship Lease Trust, for instance, delivered a 38 per cent yield, in relation to its unit price, which has declined 50 per cent since the start of the year.

Similarly, Frasers Commercial Trust had a 37 per cent yield, with a 73 per cent fall in share price.
Dividend yield is the annual dividend per share as a percentage of the share price and gives an indication of how much a company pays out in dividends each year relative to its share price. It is also known as the return on investment on a stock.

Amid the current economic turmoil with risk aversion high among investors, firms promising good dividend payouts offer a safe bet for investors looking to grow their income.

However, while yields may look impressive, analysts caution that investors should look beyond these numbers as they are based on past dividends vis-a- vis current share prices, which may not be indicative of future payouts.

They add that the payouts to shareholders may shrink, given higher financing costs, and the scarcity of capital may see some firms withhold a portion of dividends to repay loans.

Such financing concerns, along with a gloomy economic backdrop, have partially driven the share prices south.

UBS head of Singapore research Tan Min Lan said 'the absence of growth and scarcity of capital means that sustainability of dividends and high return on investment capital will be critical for performance'.

Sias Research investment analyst Alan Lok added: 'The question is whether those kinds of dividends can be sustained into next year.'

Investors should consider other factors, including the firm's cash flow, its ability to repay debt, its outlook as well as the consistency of the dividend payout, say analysts. Sometimes the distribution of a special dividend, or a one-time payout, can also skew the yield higher so it is important to check the firm's dividend history, said Westcomb Securities research head Goh Mou Lih.

An unusually high yield may also be due to a big drop in share price, which may point to some problems in the company. Looking ahead, analysts expect some firms to scale down dividend payouts.

For Reits, rental and occupancy rates may suffer further declines, along with falling property
values which may, in turn, affect how much they will be able to distribute to investors.
Similarly, yields for shipping trusts are very high but the industry has taken a beating with plunging freight rates, along with refinancing issues.

CIMB-GK head of research Kenneth Ng said that for certain sectors, yields look less sustainable than others. Yields look risky and less predictable for the shipping, offshore marine and hospitality sectors, he said.

On the other hand, transport players such as SMRT and Comfort DelGro, telco M1, Singapore Post and Singapore Press Holdings may offer more sustainable yields.

Merrill Lynch cited SingTel and ST Engineering among its preferred picks. In particular, there could be a higher- than-expected dividend payout by SingTel given its strong balance sheet, said analyst Reena Bhasin in a note.