3 Hong Kong Blue-Chip Companies I would Buy

Willie Keng
·5-min read

Forget Hong Kong-listed technology stocks.

Investors are so caught up in overvalued tech stocks they have plain forgotten some of Hong Kong’s most profitable, high yielding blue-chips.

In my opinion, these three high-yielding dividend Hong Kong blue-chips have dominated the finance, property and telecommunications industries and continue to be profitable in Asia.

China Mobile Ltd (SEHK: 0941)

China Mobile is one of the largest publicly traded telecommunication operators (telco) in the world.

Today, China Mobile dominates 59% of the total wireless market and 44% of the fixed-line broadband market in China with its massive 946 million subscribers. This number is far larger than the total subscribers of the “Big Three” US telco providers — AT&T, Verizon and T Mobile combined.

Telco is a “boring” business as its subscribers are probably the most stable customers.

The thing is, you need to be connected to the internet, whether it’s calling someone, buying things online, or watching a show, on your smartphone. And China Mobile makes sure you get to do them seamlessly.

That’s why China Mobile has become so essential in people’s lives that there’s little to no risk of China Mobile going out of business even during a recession.

But here’s the other thing. China Mobile rewards its shareholders well.

Even during this tough pandemic, the company grew its trailing 12-month dividends to HK$3.253 per share. That’s 11% higher than its HK$2.92 per share paid out in the prior trailing 12-months.

This puts China Mobile’s dividend yield at 6.9% today.

Moving forward, China Mobile’s main driver of growth will likely be the future rollout of 5G coverage across the country of 1.3 billion.

So far, there’s only 147 million 5G subscribers for China Mobile as of end-November 2020, which represents huge potential for this telco company.

I would definitely consider placing this telco giant in my watchlist.

Industrial and Commercial Bank of China (SEHK: 1398)

Did you know that you can buy the whole of China with just one stock?

Industrial and Commercial Bank of China (ICBC) dominates China’s finance industry. With total assets of CNY33.5 trillion, ICBC is also the world’s largest bank.

Today, ICBC lends out a colossal CNY18.4 trillion to all the industries in China.

Whether its infrastructure, manufacturing, retail or even housing mortgages, ICBC is the ultimate money-lender to every state-owned enterprise and private business in the country.

Not only is ICBC China’s largest bank, it’s also very profitable.

One measure of a bank’s profitability is its return on equity (ROE).

Simply put, the ROE measures how much profit the bank generates from every dollar of equity its shareholders invested.

ICBC’s 10-year average ROE is 18%, far beating even our biggest bank in Singapore, DBS Group.

But what’s even more interesting is ICBC has only lent out 70% of its entire deposits. You see, ICBC maintains a healthy “loan-to-deposit” ratio. This means it can still be very profitable even though it lends out less than the deposits it collects.

This also means ICBC has ample room to lend more money without exceeding its deposit base.

Even with a conservative lending profile, ICBC has paid out rising dividends year after year. In fact, dividend per share has grown from CNY0.13 per share in 2007 to CNY0.26 per share in 2019. And that’s only around a third of ICBC’s net earnings being paid out as dividends.

Today, ICBC’s dividend yield stands at 5.7%.

For the high-yield seeking investors, this might be a bank worth watching out for.

Link REIT (SEHK: 0823)

As Asia’s largest retail real estate investment trust (REIT), Link REIT owns and operates over 130 retail properties in Hong Kong and some in China.

Many of these malls are located in the older, urban district areas and are able to capture business from nearby residents.

In my opinion, these profitable malls are more resilient than Hong Kong’s main shopping districts in the Central and Tsim Sha Tsui regions.

There is always a natural demand for nearby residents to shop at their local malls for their daily essentials. This is different from the city’s big shopping malls, where tourist traffic has been negatively impacted by the global economy.

And tenants know that Link REIT’ well-located malls will continue to attract heavy foot traffic over the long term.

This is the reason why tenants stayed on through the pandemic.

Link REIT’s overall occupancy rate for its Hong Kong retail stood at a stable 96%. The REIT continued to collect more than 95% of its rent through 2020.

Dividends are a crucial portion of Link REIT’s investment thesis. Many dividend investors look at investing in REITs for their steady income.

In fact, Link REIT’s distribution per unit (DPU) grew steadily from HK$0.67 per unit in FY2007 to HK$2.87 per unit in FY2020 (note: the REIT has a 31 March fiscal year-end).

I think the ability for Link REIT to grow its dividends will continue to attract yield-hungry investors.

Get Smart: Blue-Chip dividend companies hiding in plain sight

While the world is watching technology stocks smash their peaks, many of these resilient blue-chip companies have been left forgotten.

These stable and consistent dividend-paying businesses have been hiding in plain sight and are ripe for the picking.

For long term yield-seeking investors, perhaps it’s worth taking a second look at them.

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Disclaimer: Willie Keng owns shares in ICBC.

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