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Are Bigger Dividends From ComfortDelGro On the Cards?

The earnings season is rolling along nicely and transport outfit ComfortDelGro (SGX: C52) would soon be revealing its full-year results on 13 Feb 2014.

The company has international operations spanning seven countries, namely Singapore, Ireland, the United Kingdom, Australia, China, Vietnam, and Malaysia. The bulk of ComfortDelGro’s business resides in Singapore – accounting for some 59% of revenue in 2012 – with the United Kingdom, Ireland, and Australia being other important geographical markets that represent around a third of annual sales collectively.

The company owns a global fleet of 46,600 vehicles and has interests in public and chartered bus services; rail services; public taxi services; car rental and leasing services; and vehicle inspection and evaluation services, among others.

Since 2008, ComfortDelGro has managed to grow its annual dividend in each consecutive year, a record that its majority-owned subsidiary Vicom (SGX: V01) also boasts of.

Year

ComfortDelGro’s dividend per share

2008

S$0.050

2009

S$0.053

2010

S$0.055

2011

S$0.060

2012

S$0.064

Source: S&P Capital IQ

As seen from the table above, the company has managed to grow its dividend by 6.4% annually on average. Can it keep that up?

ComfortDelGro had just embarked on its Third Five-Year Cycle business plan that would stretch from 2013 to 2017. The first two Five-Year cycles had managed to bring some nice growth for the company; revenue grew by a compounded annualised rate of 6.5% for the decade ended 2012 while operating profit grew slightly faster at 7.9% annually over the same stretch of time.

According to its 2012 annual report, ComfortDelGro “should continue to confine [its] business area to land transport in the Third Five-Year Cycle” and to “continue to return to shareholders as dividends at least 50% of [its] profit.” From that, it’s clear that the company would be paying out at least half of its annual profits as dividends each year till the end of the cycle.

Even without the promise from the Third Five-Year Cycle, ComfortDelGro’s pay-out ratio – the percentage of earnings paid out as dividends – has been hovering around the 50% mark since 2008.

Year

ComfortDelGro’s pay-out ratio

2008

54.7%

2009

47.8%

2010

49.0%

2011

48.8%

2012

52.1%

Source: S&P Capital IQ

Over the nine months ended 30 Sep 2013, the company has been able to grow its top-line by 4.4% year-on-year to S$2.76b. Profits, meanwhile, improved by 6.3% to S$203m compared to a year ago.

During ComfortDelGro’s half-year earnings release for the six months ended 30 June 2013, the company also declared an interim dividend of S$0.03 per share, some 3.4% higher than the interim dividend of S$0.029 per share that was paid out in the previous year.

From the look of things, investors could expect a larger annual dividend for 2013 from ComfortDelGro if it can maintain the momentum in its earnings growth while paying out at least half of those profits as dividends.

But as it is, investors can only know for sure when the company reports its results over the next two weeks.

Shares of ComfortDelGro are currently selling for S$1.94 apiece and carry a historical yield of 3.3% based on its annual dividend for 2012. In contrast, the average dividend yield for local shares in Singapore currently stands at around 2.7% based on data for the SPDR Straits Times Index ETF  (SGX: ES3), an exchange traded fund which tracks the Straits Times Index (SGX: ^STI).

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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 writer Chong Ser Jing doesn’t own shares in any companies mentioned.