A Halal Dividend Stock in Focus: Is Singapore Airlines a Buy?

This Shariah compliant Asian stock is reasonably priced and pays a dividend of 7%.

Being a highly sensitive and cyclical business, airlines is an equivocal investment. Some names, however, have proven to be more resilient than others in the long-term. 

Muslim investors who are bullish on the aviation sector — which is forecast to grow at more than 4% over the next two decades — could consider Singapore Airlines Ltd for income.

www.singaporeair.com

Singapore Airlines (SGX:C6L)

• Market cap: S$24.1b

• Net margin: 14%

• Return on equity: 16%

• Price-to-earnings ratio: 8.9x

Singapore Airlines (SIA) is a top holding of FTSE ST Singapore Shariah Index, the principal list of halal stocks from the main board of the local exchange. The airline is a veteran in Asia and one of the best premium brands globally. The group also owns a low-cost carrier Scoot.

The business has recovered quite a bit from COVID-time lows, with Singapore Airlines posting record numbers for the past two years. In financial 2024 ended 31 March, thanks to heavy passenger traffic, total revenue increased by 7% (to S$19b) and operating profit by 1.3% (to S$2.7b).

Such robust performance has made it possible for Singapore Airlines to resume paying dividends — which had been stopped in 2020-2021 — and at rates above pre-pandemic levels too: the trailing yield of 7.2% far exceeds 4.5% reached in financial 2019.

None of the airline peers in the West can boast dividend yields this high. Shariah compliant Ryanair (ISE:RYA), for one, generated a twelve-month yield of about 2%. In sharp contrast, AirAsia from nearby Malaysia (KLSE:AAX, KLSE:CAPITALA) is still not out of the woods. 

However, the sustainability of dividend at current elevated rates is under question. Passenger yields in the home region of Asia Pacific may contract in the short-term as airline capacity and frequency increase. The group expects revenue growth to slow to low single digits. 

Yet price wise, Singapore Airlines is not the most expensive stock in the industry. Its PE ratio of 8.9x is lower than that of peers like Ryanair (11.1x) and InterGlobe Aviation (NSE:INDIGO) of India (23.6x). The valuation is also the lowest since the company regained profitability in 2022.

Takeaway

In an industry beset with uncertainty, Singapore Airlines stands out as a beacon of relative safety. It is a well-known name with a loyal customer base in Singapore and neighbouring countries. (It also owns a quarter of Air India Group in a budding market of South Asia.) Performance has historically been stable, except, obviously, for the Covid period. The company also has a strong balance sheet with plenty of cash. 

In combination, these have allowed Singapore Airlines to keep paying good dividends. Although payments have been volatile, yields in most years stood above 4%. Over the last three years, the stock returned 35% (45% with dividends) while earnings have increased by more than 120% per annum — which means the current valuation is decent. As a halal stock, it is a worthy investment for Muslim investors looking to enter the airline market, especially for income.

Disclaimer: Nothing you read on Tayyib Finance constitutes financial advice. Nor is there a guarantee of Shariah compliance of any particular stock at any particular time, since ‘Shariah compliance’ is fluid depending on the provider of judicial opinion and must be regularly affirmed. Do your own research.

Here is another halal Singaporean stock with a high dividend yield:

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