Hate the MPF? Here are 2 Stocks to Buy for Retirement

In Hong Kong, the mandatory retirement scheme (known as the Mandatory Provident Fund, or MPF) is a laughing stock. Renowned among Hongkongers for sky-high management fees and poor long-term performance, many don’t see the MPF as fit to provide a comfortable retirement.

As for actually generating long-term returns, people are therefore forced to take action themselves. This means investing on our own to secure our financial future.

One of the best ways to do this is by investing in the stock market. Additionally, in Hong Kong, investors are fortunate enough to receive dividends completely tax free.

What that means is that individuals investing for retirement could try adding specific stocks to their portfolio. These should be safe, blue-chip stocks that pay out reliable and consistent dividends.

Here are two such stocks I believe Hong Kong investors can buy for a passive income in retirement.

1. Power Assets

Power Assets Holdings Ltd (SEHK: 6) should be well-known to Hong Kong investors. The power generation company has a diversified set of power-generating assets in markets such as Hong Kong, the UK, Canada, Australia, Thailand, and Mainland China.

The company also still retains a stake in the firm of Hong Kong-listed HK Electric Investments Ltd (SEHK: 2638), a unit it spun off in an IPO in 2014.

First and foremost, though, Power Assets pays a reliable dividend. Given the ubiquitous need for power generation, globally, it’s unlikely to suspend or cut its dividend.

Although it hasn’t grown the dividend in recent years, it can comfortably keep paying it. For 2019, it announced a total dividend per share (DPS) of HK$2.80. On earnings per share of (EPS) of HK$3.34 in 2019, this meant its dividend payout ratio was 83.6%.

Admittedly, this is on the slightly high end of what’s preferable but the company also has a net cash position which I believe gives it ample headroom to keep paying out.

Given its share price of HK$50.50 (as at the time of writing), investors can receive an attractive dividend yield of 5.5%.

2. Link REIT

The second reliable income stock to own is Link Real Estate Investment Trust (SEHK: 823). The REIT, which is Asia Pacific’s largest by market capitalisation, is a landlord of suburban shopping malls and car parks in Hong Kong.

Link was listed in Hong Kong in 2005 as a REIT, with real estate assets injected into it by Hong Kong’s Housing Authority.

Given the importance of the shopping malls and car parks to Hong Kong, it’s no surprise that Link has grown strongly since then.

In its first ever full-year payout for the fiscal year 2007 (FY 2007), it paid out a distribution per unit (DPU) of HK$0.6743.

Compare this to its latest FY 2019 DPU payout of HK$2.7117. That gives Link REIT’s dividend a compound annual growth rate (CAGR) of an impressive 12.3%. That easily beats the annual rate of inflation in Hong Kong over that period.

Link currently trades at HK$67.50 and offers investors a 12-month forward dividend yield of 4.2%.

Granted, Link REIT will likely face some pressures in FY 2020 given anti-government protests and Covid-19.

However, its low gearing, recent expansion into China and Australia, and rock-solid credit ratings all mean investors can rest assured the REIT will be paying dividends for years to come.