Here's why you should hold on to Singapore Post stock

It can churn out consistent dividends.

Singapore Post stock is also supported by stable operating cash flows which allows it to deliver those dividends, according to OCBC Investment Research, making it "a good stock to hold in the current volatile environment."

Here's more from OCBC:

Since our last report on Singapore Post (SingPost) on 6 May 2013, its share price rose about 8.5% to reach S$1.40 in mid May, but fell by an even greater amount (~10%) subsequently to its current price of S$1.25.

As mentioned in our earlier report, we expect the stock to be supported by investors seeking yield, given the nature of SingPost’s businesses and consistency of its dividends.

However, the strength of its rally (boosted by heightened interest in dividend-yielding instruments such as REITs) took us by surprise, and the subsequent profit-taking by investors has brought the share price down to a range that is supported by fundamentals.

With increasing labour-related expenses and administrative expenses, operating costs of the group have been steadily increasing. The changing profile of mail (domestic mail expected to trend lower though number of households in Singapore trends higher) has also meant a rapid growth of packages and decline in letters, leading to more investment requirements by management in its infrastructure.

The group is in the midst of transformation to diversify its businesses, having embarked on quite a number, albeit relatively small, acquisitions so far. More recently, the group announced that it has completed its acquisition of 30% interest in Dash Logistics Company.

SingPost is a good stock to hold in the current volatile environment, as its consistent dividends are backed by stable operating cash flows. We look forward to the group’s transformation as it seeks more growth opportunities, but till then, we see limited upside potential unless earnings growth from its acquisitions proves to be better than expected. Still, we expect the share price to be supported by investors seeking yield (~5% FY13F). Maintain HOLD with S$1.23 fair value estimate.