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ComfortDelGro Corporation Limited (SGX:C52) will increase its dividend from last year's comparable payment on the 14th of May to SGD0.0425. This will take the dividend yield to an attractive 5.0%, providing a nice boost to shareholder returns.
ComfortDelGro's Projected Earnings Seem Likely To Cover Future Distributions
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, ComfortDelGro was paying out quite a large proportion of both earnings and cash flow, with the dividend being 221% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.
The next year is set to see EPS grow by 36.3%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 55% which brings it into quite a comfortable range.
View our latest analysis for ComfortDelGro
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was SGD0.0775 in 2015, and the most recent fiscal year payment was SGD0.0777. Dividend payments have been growing, but very slowly over the period. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.
ComfortDelGro May Find It Hard To Grow The Dividend
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though ComfortDelGro's EPS has declined at around 4.5% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.
The Dividend Could Prove To Be Unreliable
In summary, while it's always good to see the dividend being raised, we don't think ComfortDelGro's payments are rock solid. The track record isn't great, and the payments are a bit high to be considered sustainable. Overall, we don't think this company has the makings of a good income stock.