NetLink NBN Trust (CJLU): A High-Yield Dividend Opportunity with an Infrastructure Moat

Income investors seeking a blend of safety, yield, and growth face a critical question: Is a dividend with a 225% payout ratio worth the risk? NetLink NBN Trust (CJLU), the backbone of Singapore’s fiber-optic infrastructure, offers a compelling case for those willing to navigate short-term risks to capture a 5.89% dividend yield—nearly 3x the telecom sector average. Let’s dissect the opportunity.

The Case for Reliability: Cash Flows Anchored in Singapore’s Digital Future

NetLink NBN Trust’s monopoly on Singapore’s passive fiber network (70% EBITDA margins) provides a fortress-like moat. Its revenue streams are 90% regulated, shielded from market volatility through the Regulated Asset Base (RAB) framework, which guarantees returns tied to a 7% pre-tax weighted average cost of capital (WACC). This structure ensures stable cash flows even as capex spikes temporarily.

Key Data Point:

While the FY2025 net profit dropped 7.6% due to capex-heavy projects like the Seletar central office, analysts project capex to normalize to SGD 70 million by FY2026, unlocking SGD 210 million in annual free cash flow. This will eliminate reliance on borrowing (e.g., the SGD 45 million loan in 1HFY25) and stabilize the payout ratio below 100% within two years.

Why the High Yield Isn’t a Mirage: Sector Outperformance and Strategic Leverage

The SGD0.0268 dividend (ex-date May 28) offers a yield of 5.89%, far exceeding the 1.9% telecom sector average. This premium isn’t arbitrary—it’s underpinned by three structural advantages:
1. Regulatory Stability: The RAB framework insulates NetLink from competitive pricing wars, as 62.5% of revenue comes from residential fiber connections with guaranteed returns.
2. Growth in Digital Demand: Singapore’s Smart Nation initiatives and cloud infrastructure investments drive rising demand for high-speed connectivity. Non-residential connections grew 1% QoQ in 3QFY25, while NBAP (non-building address points) expanded 2% QoQ.
3. Defensive Profile: With a negative 71% correlation to U.S. bond yields, NetLink acts as a hedge against interest rate volatility—a rare trait in income stocks.

The Risks: Payout Sustainability and Analyst Warnings

No investment is risk-free. The 225% payout ratio raises red flags:
- Short-Term Liquidity Pressure: Current reliance on debt to fund distributions could strain balance sheets if capex delays or regulatory reviews cut returns.
- Regulatory Uncertainty: The next RAB review (post-2026) could cap allowed returns, squeezing margins.
- Interest Rate Sensitivity: Rising rates may increase borrowing costs, though only 17% of debt is floating-rate.

Analysts have flagged these risks, but Maybank Research’s “BUY” rating (target price SGD 0.97) and 13% upside from current levels reflect confidence in long-term fundamentals.

Timing the Trade: A Strategic Buy Ahead of the Ex-Date

For income-focused investors, the May 28 ex-date creates a narrow window to lock in the 5.89% yield. Here’s the playbook:
1. Buy Before May 28: To qualify for the dividend, purchase shares before the ex-date.
2. Hold for the Long Term: The payout ratio will normalize as capex declines, and the 6% yield through FY2027 is projected to remain sustainable.
3. Monitor Capex Trends: Track whether the trust achieves its SGD 70 million capex target by FY2026—a key metric for dividend stability.

Final Verdict: A Strategic Buy for Income Seekers

NetLink NBN Trust isn’t a “set it and forget it” investment. The 225% payout ratio demands vigilance, but the infrastructure moat and sector-leading yield make it a must-consider for income portfolios. Investors willing to accept short-term volatility can capitalize on a 5.89% dividend yield backed by Singapore’s digital infrastructure growth.

Act now before the ex-date—this is a rare chance to pair high yield with a structural growth story.

Disclaimer: Past performance is not indicative of future results. Investors should conduct their own due diligence.