Tayyib 20: High-Yielding Halal Income Stocks
A ready list of sustainable halal dividend stocks to get Muslim investors started.
There is no shortage of advice out there on how to invest for income. Dividend stocks are an easy starting point. But with extra requirements to satisfy, such as those of Shariah compliance and sustainability, things start to get much trickier. With this in mind, Tayyib Finance presents its first installation of high-yielding halal dividend stocks representing ESG-friendly firms to help Muslim investors expand their horizons with new names and ideas.
High-Yielding Halal Income Stocks
Criteria
The list is made up of stocks that fulfil multiple criteria — as simultaneously Shariah compliant and sustainable (or tayyib) and also high-yielding — so the selection process took place in three consecutive stages.
Step 1. The first order of business was to compile a pool of dividend paying stocks from Islamic equity indices focused on Singapore, Greater China and the US since these markets make it comparatively easy for foreign investors to trade shares on.
Singapore: FTSE ST Singapore Shariah Index;
Greater China: FTSE China and Hong Kong Shariah Indices, Dow Jones Islamic Market Greater China Index;
US: FTSE EPRA Nareit IdealRatings Developed REITs Islamic Green Capped Index.
Step 2. From the resulting lot of halal dividend stocks, only those with more than 4% in trailing 12 months dividend yield were selected. It is an arbitrary number but generally a return of 4% and more is considered good in most places, especially given the additional layers of Shariah compliance and sustainability (both of which narrow down the choices significantly).
Valuation wise, disregarding sector specific differences in pricing, the price-to-earnings ratio was capped at 30x, in order to avoid excessively pricey stocks.
Step 3. Finally, in the spirit of Tayyib Finance, the high-yielding halal stocks were assessed on the basis of environmental, social and governance performance, proxied by a rating from Sustainalytics. The selection was limited to companies with Low or Medium Risk at most, referring to the size of unmanaged ESG risk that could potentially affect future financial value.
Results
We have ended up with 9 (Greater) Chinese, 7 Singaporean and 4 US counters, totalling 20 tayyib stocks paying fair dividends.
The highest-yielding with 10.8% is Taiwan’s Mediatek, a semiconductor designer supplying systems on a chip to smartphone makers like Xiaomi and Vivo. Henderson Land Development, a property developer from Hong Kong, is in second place with 8.7%. State-owned China Mobile yielding 7.4% rounds out the top three.
Invest in MediaTek for Halal Income
Taiwan’s big claim for fame is semiconductors. The latter, in turn, are synonymous with TMSC, Taiwan Semiconductor Manufacturing Company, the world’s largest foundry. But Hsinchu, where TMSC is headquartered, is also home to another notable Taiwanese firm.
Halal Income Stock: A Hong Kong Native, Henderson Land
The Chinese stock market has been cheap for a good few years now, hence the abundance of high dividend payers. But sifting through them for quality companies, let alone halal tayyib stocks, is far from easy.
China Mobile: An Underrated Halal Income Stock
The world’s largest wireless carrier, China Mobile makes an unassuming first impression. It may have to do with its ultimate ownership lying with the government of China or, relatedly, its not long-past troubles with the US authorities (which resulted in a forced delisting by the New York Stock Exchange).
Singaporean stocks that make the list — led by Frasers Logistics & Commercial Trust — average 5.4% in dividend yield. The US stocks, all in Real Estate, yield a lower 5.0%.
Halal Income Pick: Frasers Logistics & Commercial Trust
This post takes a closer look at an investment that topped my shortlist of sustainable halal dividend stocks in Singapore covered last month.
Sectors are predominantly Real Estate (for 12 out of 20 stocks) — an expected outcome given the intrinsic Shariah compliance of real estate assets. Technology stocks (3), which tend to be cheaper around Asia than in the US, are next in line. Industrials and Communication Services are two each; to end, there is a single Utility from Hong Kong.
Remarks
Although the selection process has been intricate, the shortlist is not final. It is also fluid given constantly changing prices and varying earnings levels. For this reason, each stock ought to be examined closely for qualities that make for a reliable source of dividend income. (In addition, the halal status of stocks needs to be reconfirmed at least on a quarterly basis.) On our part, we will be covering individual halal income stocks from the above table in the coming posts with more definite recommendations.
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.