Want Your CPF Money To Work Harder For You? Here Are 3 Blue-Chip Stocks To Consider

The Central Provident Fund (CPF) is a compulsory social security system that allows Singapore citizens and permanent residents to set aside money to take care of our retirement, housing, and healthcare. 

The monthly CPF contributions that both employers and employees make go into three different accounts: 

1. ​Ordinary Account (OA);
2. Special Account (SA)​; and ​
3. MediSave Account (MA)​. 

The accounts earn interest at various rates, as shown below:

There is an extra 1% interest on the first S$60,000 of our combined balances in CPF. Of this S$60,000, S$20,000 is for the OA. 

Those of us with more than S$20,000 in our OA can invest the remaining money in a scheme called the CPF Investment Scheme (CPFIS). That money would be earning 2.5% interest if left untouched. 

The CPFIS allows us to invest in stuff like Singapore government bonds, annuities, unit trusts, exchange-traded funds, stocks, and even gold to enhance our retirement nest egg.   

But before you get all too excited to invest your CPF money, you should consider whether you are ready to “CPFIS it or not”. 

So, Should You “CPFIS It”?

Firstly, we should realise that investing our CPF money is not for everyone. 

Only those of us who are confident of getting returns above that of the CPF rates should invest. If we just leave the money in our CPF accounts, we would at least be getting risk-free returns.

Statistics show that in 2018, only 38% of CPFIS-OA investors made more than 2.5% return per year. 

There are also certain pre-requisites to satisfy if you wish to invest your CPF money:

For those who are confident to invest your excess funds, have a relatively high risk appetite, and have a long-term horizon, one type of investment you can look into is Singapore-listed stocks. 

Our local stock market operator, Singapore Exchange, provides a list of stocks that are eligible for investment under the CPFIS. 

Three Singapore Shares To Consider

From that list, I picked out three stocks that are part of the Straits Times Index (also known as blue-chips) and have dividend yields above the CPF OA’s basic interest rate of 2.5%. 

Those companies have the potential to do well over the long run as well. 

So, if all goes well, you can win on two fronts — beat the CPF OA interest rate through the higher dividend yield, and at the same time, get ‘em capital gains.  

Those three blue-chip stocks are: 

1. CapitaLand Mall Trust
2. DBS Group Holdings Ltd
3. Singapore Exchange Limited

Investors can consider researching further into these shares and invest in them after doing their due diligence. 

Disclaimer: The information that follows serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock. The writer may have a vested interest in some of the companies mentioned.

1. CapitaLand Mall Trust

First on the list is CapitaLand Mall Trust (SGX: C38U), a real estate investment trust (REIT) that owns 15 shopping centres in Singapore, including Funan, IMM Building, and Plaza Singapura.

CapitaLand Mall Trust also has an 11.2% stake in CapitaLand Retail China Trust (SGX: AU8U), the first China shopping mall REIT in Singapore. CapitaLand Limited (SGX: C31), which is also part of the Straits Times Index, is the sponsor of both the REITs.

From 2014 to 2018, CapitaLand Mall Trust’s distribution per unit (DPU) climbed from 10.84 Singapore cents to 11.50 Singapore cents, going up around 1.5% each year. 

In its latest 2019 third-quarter earnings, the REIT improved its DPU by 4.8% to 3.06 Singapore cents, up from 2.92 Singapore cents one year back. 

For the whole of 2019, CapitaLand Mall Trust investors can expect DPU to be higher than that of the previous year due to contributions from Funan and Westgate. Funan re-opened in June 2019 after a three-year rejuvenation while in November 2018, the REIT purchased the balance 70% of Westgate that it did not own. 

One risk to be aware of though: If Singapore’s economy were to weaken, people might tighten their wallets and that could affect CapitaLand Mall Trust’s tenant sales. If the slowdown is prolonged, it could then cause retailers to shutter their stores, hitting the REIT’s top-line. 

At CapitaLand Mall Trust’s unit price of S$2.52, it has a price-to-book (PB) ratio of 1.2 and a distribution yield of 4.7%. 

Stocks Discussion: CapitaLand Mall Trust

2. DBS Group

DBS Group Holdings Ltd (SGX: D05) is the next company on my list. 

DBS is Singapore’s largest bank and is also one of the world’s most recognised banks. It has won numerous awards such as the “World’s Best Digital Bank,” “Global Bank of the Year”, and “Best Bank in the World”. 

From the dividend-perspective, long-term DBS shareholders would be laughing their way to their banks (pun not intended). 

From 2014 to 2018, DBS’ dividend per share has surged around 20% per annum from S$0.58 to S$1.20. That’s some growth there! 

DBS reiterated in its 2019 first-quarter earnings that its “policy of paying sustainable dividends that rise progressively with earnings remains unchanged”. 

Having said that, something to watch out for is the liberalisation of the banking sector here, which could disrupt the incumbent banks. 

The Monetary Authority of Singapore will issue up to five digital bank licences, and that is poised to change the banking landscape here. Investors have to ascertain whether DBS can continue doing well amid the possible heightened competition here. 

At DBS’ share price of S$24.95, it has a PB ratio of 1.3 and a dividend yield of 4.8%.

Stocks Discussion: DBS Group

3. Singapore Exchange Limited

The last company on my list is Singapore Exchange Limited (SGX: S68). On top of providing equity and bond listings, the company also runs a lucrative derivatives business. 

Singapore Exchange’s dividend climbed from S$0.28 per share for its fiscal year ended 30 June 2015 (FY2015) to S$0.30 per share in FY2019, growing at some 2% each year.   

In the first quarter of FY2019, Singapore Exchange started a new dividend policy of paying a dividend of S$0.075 per share every quarter, giving a total annual dividend of S$0.30 per share. 

The stock market operator said that it aims to “pay a sustainable and growing dividend over time, consistent with the company’s long-term growth prospects”. 

Potential investors have to note that SGX has been facing slowing revenue in its equity business.

In FY2019, revenue from its Equities and Fixed Income division tumbled 15%, and as of end-2018, SGX’s average daily turnover has been halved since 2007. Big-name delistings and Singapore-grown companies listing elsewhere have also caused investors to fret.

However, the growth in its Derivatives business more than made up for the drop in the Equities and Fixed Income division for FY2019.

At Singapore Exchange’s share price of S$8.86, it has a price-to-earnings ratio of 23 and a dividend yield of 3.4%.

Stocks Discussion: Singapore Exchange