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Are Higher Dividends On Its Way At Global Logistic Properties?

As a pure-play logistic facilities provider – albeit with a small-but-growing fund management business for real estate funds – Global Logistic Properties (SGX: MC0) has a rather unique set of businesses amongst the other 29 blue chips within the Straits Times Index (SGX: ^STI).

Even though GLP is also in the business of leasing out real estate space to tenants, much like how property owners like City Developments (SGX: C09) and Hongkong Land Holdings (SGX: H78) earn their keep, the latter two are focused on commercial and retail properties (i.e. office buildings and shopping malls) while GLP – as mentioned earlier – has its eyes set on logistics facilities.

The company’s relatively new to the public markets as well, given that it had just floated its shares on the Mainboard Exchange back in October 2010. Since its listing at a price of S$1.96, shares of GLP are now 41% higher at its current price of S$2.77. Compared to the Straits Times Index’s gain of a paltry 1.5% to 3,229 points now, the logistics outfit has been a solid market beater.

But that’s not all GLP has done for its shareholders: The company has also provided growing income for investors. Even though the company has only had a 2-year history of paying dividends so far, it has managed to bump up its latest annual dividend by a cool 25%.

Financial year ended 31 March

Dividend

Year-on-year change

2012

S$0.03

2013

S$0.04

25%

Source: S&P Capital IQ

With GLP slated for a release of its full-year results in less than a month on 23 May 2014, can investors look forward to bigger dividends from the company soon?

Some companies have a fixed dividend policy whereby management has the intention to pay out a fixed percentage of earnings every year. There’s no such policy stated with GLP, so investors would have to work with other data points.

For a start, management’s thinking toward the use of capital in the company would be worth a look. Since the paying of dividends is just one way a company can utilise its precious resources, it would be instructive to get a feel of how the company’s directors and management think about managing capital.

In GLP’s latest annual report, it mentioned that it “maintains a strong balance sheet and actively monitors its capital structure through its gearing ratios and debt ratios to maintain them within acceptable limits.” From this, it can be seen that GLP intends to utilise leverage prudently and in any event whereby leverage increases precipitously, dividends – which are ultimately paid through cash in the company’s coffers – could be sacrificed in order to shore up the company’s finances.

At the end of its financial year ended 31 March 2013 (FY 2013), GLP had Net Debt to Asset and Net Debt to Equity ratios of 8.2% and 10.2% respectively. Given that GLP had ended the third quarter of its FY 2014 with corresponding ratios of 11.8% and 15.3% respectively – and assuming that there’s no severe deterioration in its balance sheet – it would seem that concerns over the company’s leverage would be minimal at most for the fourth quarter of FY2014.

This would bring up the company’s level of profits as one of the main drivers of its dividends. Over its past 2 completed-financials years when it has paid a dividend, GLP’s pay-out ratio – the percentage of earnings paid out as dividends – has remained really low; that would suggest that GLP has ample room to bump up its dividends even if its profits fall short.

Financial year ended 31 March

Pay-out ratio

2012

21%

2013

23%

Source: S&P Capital IQ

Over the past three quarters of FY2014, GLP had seen its revenue shrink by 13.4% year-on-year to US$448 million while profits have improved by 14.1% to US$525 million. In the company’s commentary in its latest earnings release, it remained really positive about its future as it said: “While we remain mindful of the potential near-term challenges in the local and global economic environments, our market leading positions, strong management team and solid balance sheet, position us well for continued growth.”

Assuming the company’s growth does continue in the fourth quarter of FY2014, GLP’s investors would likely be able to look forward to larger annual dividends given 1) a strong balance sheet that’s not highly levered, and 2) a  low pay-out ratio that gives the company ample room to increase its dividend.

But of course, nothing’s set in stone at the moment and investors can only know for sure how GLP’s dividends would look like come 23 May 2014.

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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.