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Hyflux Preference Shares–6% dividend yield

So I think now that the whole Singapore financial blog world is talking about this preference shares offering, I would like to briefly share my decision and views.

  1. Why would a company issue preference share at 6% to retail investors and institutional investors? I ponder this for a long time and came to the conclusion that they are too heavily geared currently and no bank would want to lend them at 3-4% any more. The logical thing is to provide a premium and market it to the public
  2. The public, starved at very low interest rates, yearns for these kind of safe higher yielding assets. It would be easy to market to them. And judging by the response people are more receptive to this than HPH.
  3. Preference shares have much lower volatility. This will be very attractive to retirees who wants predictability and reasonable returns.
  4. Preference shares do not have voting rights and are non-dilutive to current share holders. This will not alienate current equity shareholders and enable majority share holders from controlling their positions.
  5. These preference shares are cumulative so it means that if Hyflux do not pay a dividend this semi annual or annual it will accumulate. This is beneficial to Hyflux. BOT and turnkey projects do not always generate consistent cashflow. Being cumulative give them that flexibility.
  6. The yield at 6% is comparable to most dividend yielding blue chips and REITs. Take a look at the Dividend Stock Tracker to compare against existing dividend yielding stocks.

My decision is not to participate in this issue. It is so oversubscribe that I have a feeling if I put in 10-20k I won’t get any so it will be a waste of effort. There are competing stocks out there that offers 6% if not higher so by not applying for this it will not be like you missed out on something.

I run a free Singapore Dividend Stock Tracker . It  contains Singapore’s top dividend stocks both blue chip and high yield stock that are great for high yield investing. Do follow my Dividend Stock Tracker which is updated nightly  here.


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Wednesday 20th of April 2011

I dont agree with the view that cumulative is beneficial to Hyflux. They can always do a non-cumulative like DBS NCPS, and it is more beneficial to Hyflux.

Having said that, Cumulative feature is benefical to attract investor.

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