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Would Dividends at SIA Engineering Company Limited Continue to Grow?

SIA Engineering Company (SGX: S59) earns its keep by providing aircraft maintenance, repair, and overhaul services (MRO services) for more than 85 airlines around the world. It’s a subsidiary of Singapore’s flagship full-service carrier Singapore Airlines (SGX: C6L), and is also a component of Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI).

Over its past five completed financial years, SIA Engineering has managed to grow its dividends by 37.5% in total as shown below:

Financial Year Ended 31 March Dividend per share
(inclusive of special dividend)
2009 S$0.16
2010 S$0.18
2011 S$0.30
2012 S$0.21
2013 S$0.22

Source: S&P Capital IQ

With the company likely to be reporting its full-year results for the financial year ended 31 March 2014 (FY2014) soon – given that its third-quarter earnings was released on 3 Feb 2014 – can it continue its streak of annual dividend increases?

In SIA Engineering’s latest annual report for FY2013, it described how it views the management of its capital:

The primary objective of the management of the Company’s capital structure is to maintain an appropriate capital base while retaining financial flexibility to pursue business opportunities and adequate access to liquidity to mitigate the effect of unforeseen events on cash flows.”

In other words, the company has placed an emphasis on having sufficient financial resources to meet any needs for business expansion and growth and at the same time, maintain the strength of its balance sheet in order to create a strong buffer to tide over rough times.

Looking at SIA Engineering’s latest balance sheet, it can be seen that the company has S$462 million in cash and short-term deposits while having total liabilities of only S$258 million. In light of that and its views on capital management, it seems highly unlikely that concerns over the strength of the company’s balance sheet would dictate its dividend pay-outs. As such, the level of its profits would likely be the main driver in decisions regarding its dividends.

Over the nine months ended 31 Dec 2014, SIA Engineering had seen its sales inch up by 0.5% from S$863 million a year ago to S$867 million while its profits have slipped by 1.8% to S$201 million. During the earnings release, the company also warned about “[r]ising business costs, particularly labour cost” but did mention that its profit performance is “expected to remain stable.”

Over its last five completed financial years, SIA Engineering’s pay-out ratio – the percentage of profits paid out as dividends – has averaged around 90% as seen below. That would also mean that even though the company’s comfortable paying out a high percentage of profits to share the spoils with shareholders, it does not leave much room for sustainable dividend increases if profits can’t grow.

Financial Year Ended 31 March Pay-out ratio
2009 66%
2010 82%
2011 126%
2012 85%
2013 90%
Average 90%

Source: S&P Capital IQ

With a dividend of S$0.07 per share declared for the first half of FY2014 that’s unchanged from that of FY2013, it’s likely that SIA Engineering would have to see some improvement in its profits for the last quarter of FY2014 when it reports its full-year financials soon if investors are to see an annual dividend increase – a “stable” profit performance would not be sufficient.

But as it is, nothing’s cast in stone yet till the company’s scorecard eventually arrives.

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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.