Below, I evaluate the SGX as an investment market with a focus on valuation, dividend yield, and specific stocks to consider, drawing on recent data and market insights.

Valuation of the SGX Market

The SGX is known for its relatively attractive valuations compared to other developed markets, though it’s not without challenges:

Price-to-Earnings (P/E) Ratios: The Straits Times Index (STI), a key benchmark for SGX, has historically traded at lower P/E ratios than global peers like the S&P 500. As of recent data, the STI’s P/E ratio is around 12-14x, compared to the S&P 500’s 20-25x, suggesting Singapore stocks are relatively undervalued.

Market Performance: The STI has shown resilience amid global uncertainties, with a 14.3% return over the past year, outperforming the broader Singapore market. However, it lags behind high-growth markets like the U.S. due to its heavier weighting in defensive sectors like banking, real estate, and consumer staples.

Growth Prospects: SGX benefits from Singapore’s stable economy, strong regulatory framework, and status as a financial hub. Growth in cash equities, IPOs, and derivatives trading, along with initiatives like SGX’s OTC FX platform, supports revenue diversification. However, a decline in listed companies and competition from other Asian exchanges could temper growth.

Risks: The SGX is sensitive to global economic shifts and geopolitical tensions. Its outward-facing nature means it’s exposed to regional market volatility, but its focus on defensive sectors provides some stability.

Conclusion: The SGX offers compelling valuations for value-oriented investors, particularly in sectors like banking and REITs, but growth potential may be moderate compared to tech-heavy markets.

Dividend Yield

The SGX is renowned for its high-yield dividend stocks, making it attractive for income-focused investors:

Market Dividend Yields: SGX stocks, particularly REITs and blue-chip companies, offer yields ranging from 4% to 12%, significantly higher than many global markets. The average STI yield is around 3-4%, with top-tier dividend stocks yielding 5-7%.

Sustainability: Many SGX companies have strong cash flows and low payout ratios, ensuring dividend sustainability. However, some stocks have volatile dividend histories, so investors should prioritize those with consistent earnings and cash flow coverage.

SGX’s Own Dividend: Singapore Exchange Limited (SGX:S68) itself offers a dividend yield of 2.48-2.57%, below its historical average of 3.5% but stable, with a payout ratio of 61.7% and cash flow coverage of 70%. It has grown dividends at ~2% annually over the past decade, supported by a 4.5% net profit increase to S$525.9 million in FY2024.

Conclusion: The SGX is a strong market for dividend seekers, with competitive yields and generally sustainable payouts, though investors should research individual stocks for reliability.

Stocks to Consider

Below are three SGX-listed stocks highlighted for their dividend yields, valuation, and financial health, based on recent analyses:

DBS Group Holdings Ltd (SGX:D05)

Sector: Banking

Dividend Yield: 5.53-5.58% (below top-tier but competitive)

Valuation: Trades below estimated fair value, with a P/E ratio lower than industry peers. Recent reports suggest potential undervaluation.

Financials: Record net profit of S$11.4 billion in 2024, up 11% year-on-year, with a return on equity of 18%. Payout ratio of 54.1% indicates sustainable dividends, though past volatility warrants caution.

Why Consider: As Singapore’s largest bank, DBS offers stability, consistent earnings growth (15% annually over five years), and a strong regional presence. Recent executive changes may influence strategy but don’t currently impact dividends.

Risks: Exposure to interest rate fluctuations and regional economic slowdowns.

BRC Asia Limited (SGX:BEC)

Sector: Steel Reinforcement/Construction

Dividend Yield: 6.67-6.81% (top 25% in Singapore)

Valuation: Trades at a significant discount to estimated fair value, offering good relative value compared to peers.

Financials: Payout ratio of 35.9% and cash payout ratio of 85.3% suggest dividends are covered, though cash flow coverage is tighter. Recent earnings growth, but forecasted declines could impact future payouts.

Why Consider: High yield and undervaluation make it attractive for income and value investors. Its operations across multiple countries diversify risk.

Risks: Volatile dividend history and potential earnings declines require monitoring.

CapitaLand Ascendas REIT (SGX:A17U)

Sector: REIT (Industrial/Commercial)

Dividend Yield: ~5.4% (based on S$0.151 per unit for 2024)

Valuation: Trades at a slight discount to net asset value, reasonable for a blue-chip REIT.

Financials: Stable rental income from a diversified portfolio (industrial, data centers, logistics). Payout ratio ~90% typical for REITs, with strong cash flows. Gearing ratio of 37% is manageable.

Why Consider: Offers consistent dividends and exposure to high-demand sectors like data centers. Resilient to economic downturns due to long-term leases.

Risks: Rising interest rates could increase borrowing costs, impacting distributions.