We have come to an end for the third quarter of 2023. There will therefore be a need to reassess what I expect dividend yield should be as we move into 2023Q4. Keep in mind though that my current assessment is my best estimation of what is going to happen over the next few months.
There is also a need to consider that the the Federal Reserve on 20 September 2023 have indicated that interest rates need to stay high for a longer period of time. This was after having increased the interest rates to a range between 5.00% and 5.25% on 26 July 2023, the highest level in 22 years. There is a possibility that long-term interest rates may see an increase over the next few months, and it is reflected in my assessment as the rates have shown to be increasing towards the end of September 2023. Investors should take note and adjust their required rate of return to suit their risk appetite.
Website: Fed declines to hike, but points to rates staying higher for longer
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Singapore Savings Bond
Investors should 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 are on an uptrend, with the October 2023 issue seeing a 10-year average return of 3.16%. 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 September 2023 rates from MAS e-service website and noted that the 10 year average yield is as below.
| September 2023 Date | 10-Year Yield |
|---|---|
| 4 | 3.16% |
| 5 | 3.19% |
| 6 | 3.22% |
| 7 | 3.25% |
| 8 | 3.22% |
| 11 | 3.26% |
| 12 | 3.25% |
| 13 | 3.27% |
| 14 | 3.25% |
| 15 | 3.30% |
| 18 | 3.34% |
| 19 | 3.33% |
| 20 | 3.37% |
| 21 | 3.41% |
| 22 | 3.42% |
| 25 | 3.43% |
| 26 | 3.45% |
| 27 | 3.42% |
| 28 | 3.47% |
| 29 | 3.40% |
| Average | 3.32% |
With that in mind, seems like the 10 year yield for the upcoming SSB November 2023 issue is looking to be around 3.32%. The interest rates have indicated to be on an uptrend and therefore as a long term holder, we should take into consideration further increases and use the 3.50% 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 3.50%, this would translate to a my expected dividend yield for new purchases to increase in 2023Q4 from 6.00% to 7.00%.
Whilst getting above 7.00% 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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