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Will Genting Singapore Ever Become A Proper Dividend Share?

Genting Singapore

Among the 30 blue chips within the Straits Times Index (SGX: ^STI), there are no shares that do not pay a dividend. This helps give the index a dividend yield of around 2.7% based on data from the STI tracker, the SPDR Straits Times Index ETF (SGX: ES3)

However, within the index’s constituents, there exists a distinct dichotomy in terms of yield. For instance, container port owner Hutchison Port Holdings Trust (SGX: NS8U) carries a distribution yield of 10.5% compared to casino and resort operator Genting Singapore’s (SGX: G13) paltry 0.7% yield.

Company Current Price Dividends for last completed financial year Yield
HPH Trust US$0.63 US$0.066 10.5%
Genting SP S$1.455 S$0.01 0.7%
Straits Times Index 3,082 2.7%

Source: S&P Capital IQ; Data for SPDR Straits Times Index ETFNS8U

Is there any chance that Genting SP can get its yield close to the market average, or even exceed that, any time in the future? The easiest way for a share to increase its dividend yield is to see its share price drop, but that’s just a cop out and not what we’re looking at today.

Instead, let’s take a look at Genting SP’s pay-out history. The company first declared a dividend only in 2011 – some S$0.01 per share – and has kept the declared-dividend constant in 2012 as well. So, we don’t have much history to base our judgements upon what management has seemed inclined to do in the past with regard to dividends.

But there are two things we do know: 1) the company’s pay-out ratio, and 2) the company’s policy toward dividends.

1) Pay-out ratio

Genting SP’s pay-out ratios – the ratio of dividends per share to earnings per share – for 2011 and 2012 stood at 12.5% and 17.9% respectively. This suggests that, barring any major downturns in its business, Genting SP has significant headroom to bump up those dividends. A cash flow analysis for the casino and resort operator also points us in the same direction

2011 2012 Last 12 months
Dividend per share S$0.01 S$0.01
Earnings per share S$0.08 S$0.05 S$0.05
Pay-out ratio 12.5% 17.9%
Free cash flow S$118m S$380m S$394m
Cash dividends paid S$122m S$122m
*Dividends declared for 2011 are paid in 2012; dividends declared in 2012 are paid in 2013 and so on.

Source: S&P Capital IQ

2) Company’s dividend policy

In Genting SP’s 2012 annual report, the company’s management laid out its principles toward managing financial risks in the company:

[Genting SP’s] objectives when managing capital are to safeguard [its] ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. [Here, “capital” is defined as] all components of equity.

In order to maintain or adjust the capital structure, [Genting SP] may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.

Consistent with others in the industry, [Genting SP] monitors capital based on a gearing ratio. This ratio is calculated as total debt divided by total capital. Total debt is calculated as total borrowings (including ‘current and non-current borrowings’ and ‘finance leases’ as shown in the statement of financial position). Total capital is calculated as equity attributable to ordinary shareholders of the company and perpetual securities holders plus total debt.

[Genting SP’s] strategy in 2012, which was unchanged from 2011, was to maintain the gearing ratio below 66%.”

In other words, Genting SP’s gearing ratio (as defined by the company) is of its main concern, and the payment of dividends, as well as other decisions related to the influx or outflow of capital to/from the company, rests on how the ratio changes.

This is how Genting SP’s gearing ratio has changed over the years:

Financial Year Gearing Ratio
2008 32%
2009 48%
2010 41%
2011 34%
2012 23%
Last 12 months 20%

Source: Genting Singapore’s annual reports; S&P Capital IQ

With its current gearing ratio being lower than at each end of the past five completed financial years, it again points to management having greater leeway in increasing those dividends.

Foolish Bottom Line

While the numbers do point toward Genting SP having a good chance of seeing bigger dividends, we can never be too sure. After all, management might have other important business considerations that require capital which can override the payment of dividends.

In addition, there are qualitative factors – such as Singapore’s tourism industry outlook and the willingness of gamblers worldwide to continue patronising Genting SP’s casinos, among others – that will ultimately determine how well Genting SP’s business does.

That in turn is what determines long-term shareholder returns, be it in the form of dividends or capital gains from share price increases.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.