There is a case for investing in high dividend yield stocks, with Malaysian economic growth expected to moderate over the next six months, domestic interest rates which are flattish with a downward bias, and a range-bound equity market. We provide a list of stocks which offer dividend yields better than current fixed deposit rates, relatively stable businesses and low correlation to the FBMKLCI for defensive qualities.
- Malaysian economic growth is expected to moderate over the next six months, as the problems in Europe start to impact our economy. While we are still projected to register positive growth, domestic interest rates are now expected to be flattish with a downward bias.
- We expect the FBMKLCI to trade within a range of 1300-1520 over the next six months, with economic growth remaining positive but buffeted by global uncertainties. As we are now on the higher end of this trading range, the downside risk is more than the upside risk.
- With a range-bound market, action has shifted to penny stocks which were bombed out due to poor fundamentals. Although providing potentially exciting returns, these can be highly speculative and risky.
- A more conservative alternative is to invest in high dividend yield stocks, which offer better yields (net of tax) than 12-month fixed deposit rates currently at 3.2% p.a., considering that the outlook for interest rates is flattish to lower. Given that our economy is entering a soft patch, we have in Table 1 selected high dividend yield stocks with relatively stable businesses and market capitalization of more than RM300m for liquidity. We have also ranked them in ascending order of beta, where the lower the beta, the less correlated the stock’s share price is to the FBMKLCI i.e. the more defensive the stock in the event of further weakness in the overall market.
by HWDBS
