DBS, OCBC, Singapore Airlines, Singtel, CapitaLand, ComfortDelGro and Sheng Siong are just a handful of the many blue chip stocks Singaporeans will recognise. Here’s why they’re so popular and how you can invest in them.
Blue chip stocks refer to large, reputable and financially sound companies listed on the stock market. More often than not, they are market leaders dominating the industry, having been around for years. They make a popular investment type for investors looking for stability, steady dividends and lower risk in their portfolios.
Here’s what you need to know about investing in blue chip stocks:
- Characteristics of blue chip stocks
- Reasons why people invest in blue chip stocks
- Blue chip stocks Singaporeans will know
- How to start investing
Characteristics of blue chip stocks
While there is no exact defining characteristic or checklist of criteria to define a stock as a blue chip, there are some commonalities you can find.
As mentioned above, they tend to be market leaders in their respective industries. You’ll find them included in leading, recognisable market indexes. In Singapore, the likes of DBS, Dairy Farm and CapitaLand will ring a bell. They are also all part of the Straits Times Index (STI) — an index that tracks the 30 largest companies on the Singapore Exchange (SGX).
Unlike newly listed companies and penny stocks, blue chip stocks have been around for a long time, with a large market capitalisation and strong balance sheet. They are also well-known, household names that the man on the street will recognise.
More importantly, blue chip stocks typically pay regular dividends to their shareholders, gradually increasing over the years.
Reasons why people invest in blue chip stocks
For passive income: Blue chip stocks are known for rewarding their investors with attractive dividends, year after year. Whether it’s for a comfortable retirement, financial independence or other individual goals, investors looking to build a steady income stream by collecting dividends could find blue chip stocks to be a good choice to add to their portfolios.
For stability: The long history of these big companies instills confidence in investors that the company can weather future storms, much like how they’ve weathered tumultuous times of the past like the Asian Financial Crisis and the Great Recession. The size and financial stability of the company also play a part — rough seas can batter even the sturdiest of ships, what more a small dinghy.
For diversification: Diversification helps to ensure that your portfolio is not overly exposed to a single stock, geography, industry or asset class. If you’re an investor that prefers to invest in US stocks, that does not render Singapore blue chips irrelevant. There’s still good reason to include Singapore blue chips into your portfolio, to collect dividends and to keep your eggs spread across multiple baskets.
For lower risk: All investments come with a degree of risk. However, some are riskier than others. Some have unproven business models, while some are young companies looking to topple the goliath. However, blue chip stocks have proven their mettle over the years, emerging stronger from market downturns and rewarding investors with steady dividends.
However, it’s worth noting that no sector or company is infallible or immune to market volatility. For example, no one could have predicted an event like COVID-19 could bring the entire aviation and travel sector to its knees in 2020.
Blue chip stocks you should be able to recognise anywhere
The blue chip stocks in the USA are hugely popular companies that even the average Singaporean will recognise, such as Apple, Coca-Cola, Johnson & Johnson, Microsoft, Nike and Wal-Mart.
Here in Singapore, the three local banks and Real Estate Investment Trusts (REITs) are the heavyweights. Here are some of our best known blue chip stocks on the SGX.
- DBS Bank
DBS, OCBC and UOB are known as the big three banks in Singapore. They also happen to be the only banks you can open a Supplementary Retirement Scheme (SRS) account with. Amongst the three, DBS was named the ‘World’s Best Bank’ for three years running, and is the most expensive in terms of stock price.
DBS closed at S$29.65 on 21 September 2021 — a strong recovery since the lows of less than S$18 per share in March 2020. DBS also recently announced their Q2 2021 interim dividend of S$0.33 per share — a dividend payout that is back to pre-pandemic levels.
If you want in on the regular dividends given by our local banks, read more here.
- Singapore Airlines (SIA)
Our national carrier. Battered by the repercussions of COVID-19, SIA has undoubtedly faced the toughest challenge of our times. In 2020, the Singapore government spared no effort to help see SIA through this crisis. From a retrenchment exercise to pay cuts, SIA has had to make difficult decisions to aid its road to recovery.
In 2020, no dividends were announce. Last November, SIA also raised S$850 million through a convertible bond issue, used to fund operating and capital expenditure, and debt servicing.
The recent Vaccinated Travel Lanes (VTL) are offering a glimmer of hope for not only the aviation industry, but also the wanderlust people stuck in Singapore. SIA closed at S$4.97 on 21 September 2021, far from its pre-pandemic levels.
Read our full guide to SIA shares here.
- CapitaLand Integrated Commercial Trust
CapitaLand is one of the biggest real estate investment trusts (REITs) in Asia with presence in more 30 countries. They own integrated developments, retail, office, lodging, residential and other sectors including business parks, industrial, logistics and data centres.
Here in Singapore, CapitaLand owns some of the biggest malls around, including Bugis Junction, Funan Mall, Raffles City and Plaza Singapura.
You can read more about investing in REITs here.
Which mobile plan are you using? Much like our local banks, Singaporeans will also know Singtel, M1 and Starhub as the leaders in the telco space. Singtel is building up its 5G capacity and is on track to roll out its 5G network coverage nationwide by 2025.
However, Singtel has been facing headwinds, with shares falling to its 12-year low, closing at S$2.00 on 2 November 2020. For 2020, Singtel dividends totaled S$0.106 per share, lower than the S$0.175 given the previous two years. Singtel last traded at S$2.47 on 21 September 2021, a far cry from its highs of more than S$4 in 2015.
Read all about Singtel and its dividend payouts here.
- Sheng Siong
A company that benefited from COVID-19, Sheng Siong’s Q2 2020 net profit more than doubled from the same period in 2019. This performance continued strongly into Q3 2020, posting a net profit of S$31.8 million, up 54.4% from 2019on the back of strong revenue growth.
However, the hype surrounding the stock appears to have tapered off, as the stock is currently on a downtrend since August 2020.
Shareholders of Sheng Siong will be happy to see their dividend per share grow to S$0.053 in 2020, up from S$0.035 in 2019. This is equivalent to a dividend yield of around 4%. The stock closed at S$1.48 on 21 Sep 2021
How do you start investing in blue chip stocks?
Option 1: Purchasing it on your own
Take your pick from the buffet that is the stock market.
You can buy shares of a blue chip stock directly on the Singapore Exchange or other stock markets such as the Nasdaq or HKEX. To do this, you’ll first need to open a brokerage account. Opening your Central Depository (CDP) account is also required for Singapore stocks.
You can also utilise the funds from your Supplementary Retirement Scheme (SRS) account.
Option 2: Investing via a regular savings plan
You don’t need deep pockets to start investing in blue chip stocks. A regular savings plan (RSP) allows you to start growing your investment portfolio with blue chippers from as low as S$100 a month.
For example, you can use the OCBC Blue Chip Investment Plan (BCIP) to purchase counters such as OCBC, Singtel and CapitaMall Trust from S$100 a month. Similarly, you can also use the POEMS Share Builders Plan that allows investors to purchase counters including DBS, Sheng Siong and Netlink NBN Trust. If you already have in mind the blue chip stocks you wish to purchase, be sure to check the list of counters available before you start the RSP.
Blue chip stocks are an appealing buy with their steady dividend payouts and particularly more so for Singapore blue chips because of the lack of dividend withholding tax. Besides investing in blue chip stocks, there are also other ways for investors to grow their wealth. You can consider investing in REITs, ETFs, unit trusts and more. Read more stories on investing here.
Read these next:
DBS, OCBC or UOB: Which Bank Gives You The Greatest Dividend Yield?
Investing In Exchange Traded Funds (ETFs): A Newbie’s Guide To Getting Started
Guide To Real Estate Investment Trusts (REITs), And Whether You’re Ready For It
How To Build The Best Passive Income Portfolio For Your Future Self
Guide To Supplementary Retirement Scheme (SRS) And Tips To Maximise It
By Ching Sue Mae
A flat white, an adventure-filled travel and a good workout is her fuel. This Manchester United fan enjoys sharing knowledge on personal finance while chasing the dream of financial independence.