With the first quarter of 2023 closed, I will be updating what I expect dividend yield should be as we move into 2023Q2. Keep in mind though that my current assessment is my best estimation of what is going to happen over the next few months. It is possible for another black swan event to happen.
The key event in 2023Q1 is the start of banks experiencing liquidity issues. There is some expectation that we may see more bank runs going into 2023Q2 as there should be banks that are meeting the minimum capital requirements without sufficient buffer, but not yet exposed in the first quarter of 2023. Should the situation take a turn for the worse, interest rates and share prices may experience an increase in volatility.
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Singapore Savings Bond
Investors should thus plan ahead to look at the longer term yields. I would thus be using the Singapore Savings Bond yield below for my benchmark.
The Singapore Savings Bond (“SSB”) rates have seem to stabilized, with the April 2023 issue seeing a 10-year average return of 3.15%. As the SSB is backed by the Singapore Government and has a credit rating of AAA, for now this is one of the safest investments out there.
I have extracted the daily March 2023 rates from MAS e-service website and noted that the 10 year average yield is as below.
| March 2023 Date | 10-Year Yield |
|---|---|
| 1 | 3.32% |
| 2 | 3.44% |
| 3 | 3.40% |
| 6 | 3.33% |
| 7 | 3.33% |
| 8 | 3.38% |
| 9 | 3.40% |
| 10 | 3.23% |
| 13 | 3.10% |
| 14 | 2.94% |
| 15 | 3.04% |
| 16 | 2.94% |
| 17 | 2.94% |
| 20 | 2.83% |
| 21 | 2.93% |
| 22 | 2.91% |
| 23 | 2.83% |
| 24 | 2.85% |
| 27 | 2.88% |
| 28 | 2.87% |
| 29 | 2.94% |
| 30 | 2.98% |
| 31 | 2.94% |
| Average | 3.08% |
With that in mind, seems like the 10 year yield for the upcoming SSB May 2023 issue is looking to be around 3.08%. The interest rates have definitely stabilize around the 3.00% range and I can only presume is due to investors have already started to price better outlooks after the recession is cleared over the next few years. Therefore as a long term holder, it is safe to use the 3.00% as a risk free rate when making your purchase considerations.
Website: SGS Prices and Yields – Benchmark Issues
Summary
With my market risk premium of 2.50% and the risk free rate of approximately 3.00%, this would translate to a my expected dividend yield for new purchases to remain unchanged in 2023Q2 from 5.50% to 6.50%.
Whilst getting above 6.50% may seem like a good deal. There may be significant underlying risks for these assets which justified their higher yield. Investors should also not just look at dividend yield but also at the strength of the company, such as their management team, when making the investment decision.
Needless to say, as the economy remains uncertain and interest rates continue to fluctuate significantly, this may change within the next few months.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
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