With rate cuts on the cards, banks’ deposit rates are expected to stay low. Against this backdrop, dividend stocks with yields above 4% may be a better option to park your spare cash. Here are selected dividend stocks that some fund managers believe are worth looking into.

IGB Real Estate Investment Trust
Sector: Real estate investment trust (REIT)
Indicated dividend yield: 4.37%
Analyst calls: Buy (5), sell (7)
It would not be surprising to see at least a REIT in the portfolios of income-seeking investors as REITs are known as solid dividend payers.

For one, IGB REIT distributes at least 90% of its distributable income from its two Klang Valley malls — the Mid Valley Megamall and its adjacent The Gardens Mall, whose 2.67 million sq ft net lettable area was 98.6% occupied as at end-2018.

Despite mixed events seen in 2018 translating into a volatile year for the retail industry, both malls still reported a higher net property income (NPI) for the financial year 2018 (FY18), bringing the total NPI to RM386.25 million, up from RM373.56 million for the preceding year, while the annualised distribution per unit was 9.19 sen.

“Some REITs are facing challenges including a property glut, tenants potentially moving out and rentals coming down. For [the] retail [segment], stronger names will remain stable and office REITs should be avoided,” said Phillip Capital Management Sdn Bhd chief investment officer Ang Kok Heng.

Indeed, IGB REIT’s NPI continues to rise. For the first half of financial year 2019 (1HFY19), its cumulative NPI grew 4.5% on-year to RM202 million from RM193.24 million. With its dividend yield at 4.37%, IGB REIT may be an option for investors seeking stability amid volatility.

Malayan Banking Bhd
Sector: Financial services
Indicated dividend yield: 6.56%
Analyst calls: Buy (9), hold (10), sell (1)
Malaysia’s largest bank, Malayan Banking Bhd (Maybank), is currently trading at an attractive yield of 6.56% — one of the highest among banking stocks in the region.

The banking group last year paid a total dividend of 57 sen per share, after achieving a record-high net profit of RM8.1 billion, up 7.9% from RM7.52 billion for the previous year.

“The financial sector delivers a relatively high dividend yield to investors. Although a further rate cut may affect the net interest margin (NIM) for banks, given the still strong private consumption and the resumption of several infrastructure projects, the NIM drop could be offset,” said a fund manager anonymously.

Investors may look into Maybank now that its share price has dropped 12.7% from a year ago. The banking group, in which Permodalan Nasional Bhd holds a 48% stake, is expected to declare regular dividends.

Nestle (Malaysia) Bhd
Sector: Consumer products and services
Indicated dividend yield: 1.9%
Analyst calls: Hold (6), sell (7)
Despite it not standing out in terms of yield, Nestle (Malaysia) Bhd made the cut given its consistent dividend payouts even during a slowing growth environment as the company, within a defensive sector, is less impacted.

A fund manager said: “Although names such as Nestle may not come with a very high dividend yield, I would say the consistency and ability to continue its dividend payout should be something [for] investors [to] consider.”

Nestle has been delivering sustainably high returns to shareholders, as total dividends paid out reach a new high for every financial year, from RM2.35 per share for the financial year ended Dec 31, 2014 (FY14) to an all-time high of RM2.80 for FY18.

This is consistent with its earnings growth achieved annually, where revenue rose from RM4.81 billion for FY14 to RM5.5 billion for FY18 and operating profit up from RM725 million to RM915 million for FY18.

MIDF Research sees Nestle recording “stable profit margins despite a volatility in input material and increasing operational costs” amid a healthy private consumption driven by the government’s initiatives in dealing with the rising cost of living, with its Milo operations pacing up earnings growth going forward.

Investors who bought its shares at a lower investment cost than their current price would enjoy a much higher yield than what they currently fetch, giving them more reasons to hold on to the stock.

British American Tobacco (Malaysia) Bhd
Sector: Consumer/tobacco
Indicated dividend yield: 7.25%
Analyst call: Buy (4), hold (5), sell (8)
British American Tobacco (Malaysia) Bhd’s (BAT) share price has shed over 40% over the past year. It tumbled below RM20 to RM19.50 last Thursday. Its dividend yield slid to the lowest level for over a decade. The tobacco company’s current dividend yield soars to 7.25% — it is rarely that high.

“Consumer stocks can still pay [good] dividends, sin stocks too, even when the economy is bad, there are still people going for them,” said a fund manager.

The share price’s sharp drop is mainly due to concerns about its earnings prospects. However, some fund managers still see the allure of the tobacco stock, although its earnings contraction will result in lower dividends.

The dividend per share (DPS) declared is still one of the highest among many stocks on Bursa Malaysia. BAT declared a 56 sen DPS for 1HFY19, versus 68 sen for the same period last year.

Nonetheless, Ang cautioned that the company’s prospects may not be positive due to the high amount of easily accessible illicit cigarettes in the market and a decrease in sales no thanks to smokers switching to e-cigarettes. Hence, the government’s enforcement to curb illicit cigarettes is crucial for BAT.

Carlsberg Brewery Malaysia Bhd
Sector: Consumer/brewers
Indicated dividend yield: 2.96%
Analyst call: Buy (2), hold (7), sell (1)
The two largest brewers in Malaysia have been paying high DPS, but interestingly, Carlsberg Brewery Malaysia Bhd has also delivered a high return on equity of 200%.

With respect to the financial year ended Dec 31, 2018, Carlsberg paid a record-high dividend of RM1 per share, despite the brewery maintaining a cautious view on opportunities in and the growth potential of the leisure and hospitality industry.

Its earnings have been consistently growing, helping to fuel an upward trend of its share price. Over the past year, Carlsberg’s share price has risen some 27% to RM25.90. If there is an overnight policy rate cut to 2.75%, its current dividend yield of 2.96% would seem high for some fund managers given its visibility in earnings is rather clear.

On prospects, CGS-CIMB Research, having maintained its “add” call on the stock, wrote that it still likes Carlsberg due to a healthy demand for beer in Malaysia and Singapore, the defensive nature of its business, and being a cheaper proxy for the consumer sector trading at a 33% discount to the current consumer sector’s calendar year 2020 weighted average price-earnings. The research house added that higher premium beer sales are a potential rerating catalyst.

Genting Malaysia Bhd
Sector: Gaming
Indicated dividend yield: 3.5%
Analyst call: Buy (3), hold (12), sell (4)
Battered by a slew of “bad” news, Genting Malaysia Bhd (GenM) shares have fallen 38.4% over the past year. Interestingly, GenM has been paying special dividends for the three consecutive financial years. Currently, its dividend yield is at 3.5%.

Last week, GenM declared a DPS of six sen, unchanged from last year’s, despite slightly lower earnings for 1HFY19 no thanks to a higher gaming tax imposed.

A fund manager said GenM, with a big cash coffer, would still be able to pay sustainable dividends to shareholders, even when its earnings growth slows down.

While a catalyst for GenM is that it had recently reached a commercial agreement with Walt Disney Co and 21st Century Fox Inc — ending an eight-month legal dispute — with the group allowed to utilise Fox-related intellectual properties for its outdoor theme park, the theme park is however scheduled to open only in the third quarter of 2020.