University education does not come cheap.
According to our research, the total cost for a four-year local university course is a cool S$70,000. And that’s not even considering specialised programmes such as medicine and dentistry, and the money-eating monster called “inflation”.
For those who wish to send our children to an overseas university, the cost is almost guaranteed to spiral upwards.
So, how are we to save up for our kids’ university education? Socking money away in the bank for the average-salaried Singaporean is totally out of the equation.
Thankfully, we have the stock market to invest in to grow our money. With a time horizon of around 20 years before a newborn hits university-education age, putting money in the stock market for the very long-term becomes almost risk-free.
For beginner investors, one way to consider investing our money is through an exchange-traded fund (ETF). An ETF tracks the performance of an underlying index or asset class. In Singapore, there’s the Straits Times Index ETF, which mimics the performance of Singapore’s stock market benchmark, the Straits Times Index. Since 2002, one of the STI ETFs has produced a total return (which includes dividends) of 7% annually (as of 31 October 2019).
For the more advanced investors, you can consider investing in individual companies, instead of an ETF, which could potentially give you higher returns.
The idea is to consistently invest in the shares periodically until your child has five more years to go to university. Thereafter, you can consider selling the shares and putting the money in a low-risk instrument, such as the Singapore Savings Bonds, to preserve capital, and yet, eke out a higher interest than the banks can give.
With that, here are three Singapore-listed shares that you can consider investing in to pay for your precious one’s university education. I’m of the opinion that these companies have strong business prospects to stand the test of time. (Caveat: As usual, investors should do their own due diligence to understand the business and ensure the valuation of the shares make sense before purchasing them.)
TL;DR: 3 Shares To Consider Buying To Save Up For Your Child’s University Education
- DBS Group Holdings Ltd
- Raffles Medical Group Ltd
- Singapore Exchange Limited
Company #1: DBS Group Holdings Ltd (SGX: D05)
DBS is the biggest bank in Singapore and is one of the world’s most recognised banks, with more than 280 branches across 18 markets.
The bank has won many accolades; in 2019, DBS became the first bank in the world to hold three global best bank awards at the same time. It clinched the “World’s Best Bank” accolade given by Euromoney this year. This comes after DBS won the “Global Bank of the Year” award from The Banker and “Best Bank in the World” award from Global Finance in 2018.
DBS, together with POSB (bought over by DBS in 1998), attracts savers from all over Singapore with its vast network of cash machines. This wide pool of consumers gives rise to a high level of stickiness with its customers. This means that once someone opens a bank account and deposits money in with DBS, the person is unlikely to move funds in and out every other month unless there is a compelling reason to do so.
The bank has also managed to grow its net asset value and dividends consistently in the past, as seen from the table below.
|Net asset value per share (S$)||14.85||15.82||16.87||17.85||18.12|
|Total ordinary dividend per share (S$)||0.58||0.60||0.60||0.93||1.20|
As a quick primer, the net asset value is the difference between a company’s assets and its liabilities. It also shows the company’s net worth. By looking at a bank’s net worth over the years, we can see how much the bank’s capital has grown. Over the long-term, a bank’s share price tends to rise in line with its capital growth.
With an established and growing presence in Greater China, South Asia, and Southeast Asia, DBS is poised to capture growth in this part of the region for decades to come.
At DBS’ share price of S$26.60 at the time of writing, it has a price-to-book ratio of 1.3, a price-to-earnings (PE) ratio of 11, and a dividend yield of 4.5%.
Company #2: Raffles Medical Group Ltd (SGX: BSL)
Private healthcare services provider, Raffles Medical, is the second company on my list.
Raffles Medical is one of the largest providers of healthcare services in the region with operations in many countries, including Singapore and China. The healthcare outfit is also a well-known and trusted brand with many experienced medical professionals under its headcount.
Raffles Medical is very likely to be around for many years due to its strong business. Being a healthcare provider, the company’s services are essential for the public, even during an economic crisis.
|Revenue (S$' 000)||374,641||410,535||473,608||477,583||489,135|
|Net profit (S$' 000)||67,639||69,291||70,210||70,779||71,056|
|Total ordinary dividend per share (Singapore cents)||1.83||2.00||2.00||2.25||2.50|
Earlier this year, the company expanded its operations in Singapore with an extension to its flagship Raffles Hospital. Raffles Medical also opened a new hospital in Chongqing, China, in 2019, and is set to open another one in Shanghai in 2020.
If the new investments bear fruit for the long-term, Raffles Medical should generate even more profit and free cash flow, which could give rise to even higher dividends.
At Raffles Medical’s share price of S$1.02, it has a PE ratio of 29 and a dividend yield of 2.5%.
Company #3: Singapore Exchange Limited (SGX: S68)
Singapore Exchange, or SGX for short, is the only stock market operator in Singapore and is the last company to consider to pay for your kid’s education.
Being the only bourse operator, it would be almost impossible for any competitor to knock SGX off its perch. This characteristic gives the company a durable competitive advantage, which is a trait billionaire investor Warren Buffett looks out for before investing in companies.
SGX also possess an enviable net profit margin and return on equity (ROE). For its 2019 fiscal year, SGX had a net profit margin of 43% and an ROE of 36%. Both figures are very much higher than what most listed companies in Singapore tend to achieve.
To know more about SGX, including its historical financial performance, you can check out our handy 60-seconds guide here.
At SGX’s share price of S$8.86, it has a PE ratio of 23 and a dividend yield of 3.4%.
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Disclaimer: The information provided by Seedly 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 the companies mentioned.