UCSI University Malaysia associate professor for finance Dr Liew Chee Yoong.
PETALING JAYA: A strong performance in the third quarter of 2024 (3Q24) has raised expectations of higher dividend payouts from the Employees Provident Fund (EPF).
Over the past decade, EPF dividends have averaged 5.95% for the conventional scheme and 5.43% for the syariah scheme, which was introduced in 2017.
Given the strong investment income so far in 2024, could the EPF dividend rate exceed 6% this year?
Yes, it is possible, said Socio-Economic Research Centre executive director Lee Heng Guie. His firm is projecting a higher dividend rate of at least 6.25% for 2024.
“Going by the strong investment income in the first nine months (9M24), we expect the full year’s total investment income will exceed 2023’s RM67bil, given the still buoyant performance in both domestic and overseas equity markets,” Lee told StarBiz.
For 9M24, EPF posted an investment income of RM57.57bil, a 20% increase from RM47.86bil during the same period in 2023.
However, Lee cautioned that the outlook for 2025 could be more challenging.
“The prospects of a stronger investment income next year might be slightly more challenging, given the near-term uncertainties arising from ‘Trumponomics 2.0’, which may cause volatility in the equity and foreign-exchange markets,” he explained.
Meanwhile, UCSI University Malaysia associate professor for finance Dr Liew Chee Yoong said EPF dividends approaching or exceeding 6% for the year are likely within reach.
“EPF’s diversified portfolio, particularly its strong performance in equities (contributing RM18.32bil in 3Q24 alone) and its solid income from fixed income instruments, indicates an optimistic outlook for dividend potential,” Liew said.
ALSO READ: EPF records 20% increase in total investment income year-on-year at over RM57.5bil
As of September 2024, the EPF said its investment assets totalled RM1.2 trillion, with 62.2% and 37.8% allocated to Malaysian and international investments, respectively.
International investments contributed RM10.5bil in 3Q24, accounting for 53% of its total investment income.
Economist and Williams Business Consultancy Sdn Bhd founder Geoffrey Williams said a 6% dividend rate for EPF members is possible this year.
“Investment income in 3Q24 is very strong and points to a higher investment income for the full year.
“At the same time, the number of EPF account holders increased by 364,364 and voluntary contributions have also increased, so the fund is in good shape,” he said.
Williams also noted that the outcome of the United States election will likely be positive for global trade, growth and equity market returns.
“This is the main driver of higher EPF investment income and is likely to continue this year and the next,” he said.
The highest EPF dividend payout in the last 10 years was in 2017, with the dividend rate for the conventional scheme set at 6.9% and the syariah scheme at 6.4%.
Over the past decade, EPF has delivered a dividend rate above 6% five times, including in 2014 (6.75%), 2015 (6.4%), 2018 (6.15%), and 2021 (6.1%) for the conventional scheme.
Meanwhile, Liew highlighted that the continued growth of Malaysia’s gross domestic product and positive investor sentiment in the local market have strengthened the prospects for further attractive dividend yields.
ALSO READ: EPF reports 20% rise in investment income to RM57.57bil for 9M24
“However, (there are) potential risks (that) could affect these returns, such as ongoing currency translation losses in non-ringgit-denominated assets that could in turn affect the dividend payout,” he cautioned.
Liew noted that EPF’s investment portfolio remains well-positioned to benefit from favourable trends in both local and international markets.
“The anticipated easing of interest rates in the United States could further bolster equity markets and enhance EPF’s portfolio returns, particularly in sectors such as real estate investment trusts, utilities and financials, which the fund has substantial exposure to.
“However, potential challenges include geopolitical tensions and any shifts in US trade policies following President Donald Trump’s re-election, which might affect global trade dynamics and consequently, international investments,” he added.
In the bigger picture, Liew noted that while EPF’s diversified and proactive strategies suggest a solid performance outlook for 4Q24, factors like currency fluctuations, geopolitical developments and potential US policy changes could introduce volatility.
“Should these risks remain manageable, 4Q24 might see continued strength, with the possibility of surpassing 3Q24’s investment income if markets remain favourable,” he added.
Meanwhile, Liew said Trump’s recent re-election may eventually necessitate adjustments in EPF’s international investment strategies.
This may be particularly relevant considering the possible reintroduction of higher US tariffs.
“Such policies could impact certain global markets and create challenges for international assets within EPF’s portfolio,” he explained.
Depending on how this plays out on the international scene, Liew said diversification might be necessary to hedge against volatility.
“Given EPF’s strong governance and strategic emphasis on diversification, any shifts in US policy might prompt a reassessment but not necessarily a drastic change in strategy.
“Instead, I believe the fund is likely to maintain its approach of balancing risk across asset classes, while selectively reinforcing positions in less volatile or higher- yielding sectors globally,” Liew said.
