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Can the Slow and Steady ComfortDelGro Corporation Limited Win the Investing Race?

Over the past five plus years, global transportation stalwart ComfortDelGro Corporation Limited (SGX: C52) has been a steady and growing source of dividends.

Starting from the financial year ended 2009 (the company’s financial year coincides with the calendar year), ComfortDelGro’s dividend of S$0.053 per share had rose to S$0.07 per share by 2013.

Collectively, the company had paid out S$0.302 per share in dividends since 2009. For more information, my colleague Ser Jing has also looked into the company’s dividend and cashflow track record.

Despite steady growth in dividends, capital gains for ComfortDelGro are a little disappointing though as it has fallen slightly behind Singapore’s market benchmark the Straits Times Index (SGX: ^STI). From 1 January 2009 to its closing price yesterday, ComfortDelGro had delivered capital gains of around 71%. By comparison, the total returns of the SPDR STI ETF (SGX:ES3), an exchange traded fund which tracks Singapore’s market barometer, was 80% for the same duration.

When the gains from reinvested dividends are included, ComfortDelgro inches ahead of the STI.

Let’s take a closer look

While the returns from ComfortDelGro has been what seems to be a slow and steady ride, as Foolish investors, we should look under the hood to understand what the business drivers for this move in the share price has been.

ComfortDelGro revenue breakdown

Source: Company Annual Reports

It may surprise readers that almost half the revenue for ComfortDelGro comes from its bus operations. The mainstay of this segment is ComfortDelGro’s 75% stake in Singapore public-bus operator, SBS Transit Ltd. (SGX: S61).  Elsewhere, ComfortDelGro’s namesake taxi segment makes up about 32% of total revenue while the rail segment only makes a bit over 4% of sales. Over the past five years, the segments which grew the most in sales (percentage-wise) were the rail, inspection and testing services, bus station, and taxi segments.

Beyond revenue, we would ideally like to see profit rise together with the revenue increases. For that, we look into the profitability of the business segments.

comfortdelgro profit breakdown

Source: Company Annual Reports

Despite the bus and taxi segments making up about 81% of revenue, both segments collectively make up only 71% of ComfortDelGro’s operating profits. The star of the show here might be the Inspection and Testing unit of ComfortDelgro, which provided 8.3% of the transport giant’s operating profits despite only being less than 3% of total revenue. The Inspection and Testing segment’s profit comes from ComfortDelGro’s 67%-owned subsidiary, VICOM Limited (SGX: V01). The car rental and leasing segment saw operating profits zoom up the most at 107% over five years – however, that growth is coming off a small base.

Finally, Foolish investors would look for the accumulated profits to end up on the balance sheet in the end. To do this, we look at the development of cash and debt.

comfortdelgro balance sheet

Source: Company Earnings Reports

In this case, the global transport provider has been steadily increasing its cash and short term deposits in the past five years. As of the end of 2013, cash and equivalents has exceeded its borrowings for the first time in a number of years.

Foolish takeaway

As lifelong students of Foolish long term investing, it pays to look under the hood to understand whether a rise in the company’s share price is supported by the quality of growth that we are looking for.

I have covered the quarterly progress and outlook for the various segments of ComfortDelGro in a previous article. In summary, the management team sees potential revenue increases from the bus, rail, and taxi segments. By virtue of the trio’s segmental revenue size, these might be the key segments for investors to keep an eye on. For the mid-term, Foolish investors may also want to follow developments of the change in business model for SBS Transit.  Finally, for even more Foolish views, don’t miss the latest Tug-of-Fools segment on ComfortDelgro.

ComfortDelgro currently trades at a price-to-earnings ratio of 19.5 and has a dividend yield of 3.1% based on yesterday’s close.

Stay tuned for the weeks to come as I look into the geographical revenue spread for ComfortDelgro.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.