Lofty dividend payouts expected in FY24

KUALA LUMPUR: Prominent firms in the electricity and construction sectors, alongside large-cap companies in fuel retailing, telecommunications and tourism, are poised to offer higher dividends in the financial year 2024 (FY24).

UOB Kay Hian Wealth Advisors head of investment research, Mohd Sedek Jantan, attributed this prospect to improving financial performance and growing confidence.

“An anticipated improvement in dividend distribution signals financial health, with most companies expected to fully recover from the pandemic’s financial impact.

“This trend reflects a strategic move by more companies to provide dividends as part of their overall strategy,” he told BK.

The construction sector, in particular, is poised for sustained enthusiasm, buoyed by the robust pipeline of projects and contracts unveiled this year.

Domestic contract awards to listed contractors soared by 45% quarter-on-quarter to RM6.96bil in the first quarter.

The telecommunications sector is experiencing a renaissance, fuelled by the recent surge in digital investments and technological transformations in Malaysia, such as hyperscale data centres and artificial intelligence (AI)-driven technology.

Furthermore, Malaysia’s power sector is set for robust growth this year, spurred by increased demand for electricity and gas.

The sector is also reaping the benefits of declining global energy prices, which could alleviate pressure on earnings growth.

Investors see dividend-paying companies as havens of stability during economic downturns.

In a bullish market, they weigh their options between fundamental stocks and dividend stocks.

“Fundamental stocks are chosen based on a company’s financial robustness, encompassing factors such as revenue growth, earnings, and valuation metrics. While these stocks offer growth prospects, they can also be volatile,” Mohd Sedek explained.

Conversely, dividend stocks distribute regular dividends to shareholders, ensuring income stability.

“Diversification across both categories can effectively manage risk and cater to individual investment objectives,” he noted.

Mohd Sedek said Malaysian telecommunications companies stand out for their appealing dividends, thanks to stable revenue streams and the essential nature of their services.

These firms typically maintain consistent dividend payouts.

Reliable dividend payments are also a hallmark of the utilities and infrastructure sectors, benefiting from stable cash flows and long-term contracts, which contribute to consistent dividend distributions.

“By holding dividend stocks, investors can mitigate portfolio risk, as dividends provide a buffer against losses even if stock prices decrease.

“Additionally, dividend-paying stocks demonstrate lower volatility compared to non-dividend-paying counterparts,” he said.

Banks and real estate investment trusts (REITs) are renowned for their attractive dividend yields.

He said UOB Kay Hian Research in-house analysts project a dividend yield of 6.5% in 2024 for the banking sector, with expectations for it to rise to 6.8% in 2025 and further to 7.1% in 2027.

REIT stocks are forecast to achieve dividend yields of 7.1% in 2024, 7.2% in 2025 and 7.4% in 2027.

“It’s worth noting that these figures represent forecasts and not recommendations to purchase these specific stocks,” Mohd Sedek emphasised.

Mohd Sedek said the FBM KLCI has shown a consistent recovery since the fourth quarter of last year.

With robust support from foreign institutional buying activities, the FBM KLCI posted a year-to-date rise of 9.41%, adding 136.83 points.

He said UOB Kay Hian Wealth Advisors has revised the year-end target for the barometer index upwards to 1,735, a level last seen in 2018, reflecting improved domestic liquidity.

“For reference, the bottom-up target is 1,713 and the hypothetical target at mean price-to-earnings ratio valuation would be 1,803.

“Investors remain in a risk-on mode, capitalising on timely investment themes such as blockchain, selected Iskandar 2.0 and mega projects, global semiconductor cycle recovery and trade diversion, and commodities amid China’s expected cyclical demand upturn to significantly raise industrial metal prices and high yielders.“Shared sub-investment themes include data centres and AI,” he added.