Would Singapore Press Holdings Limited Be a Good Dividend Share?

Newspaper publisher and property developer Singapore Press Holdings Limited (SGX: T39) paid out a dividend of S$0.40 per share for the financial year ended 31 August 2013. Based on its current share price of S$4.14, this equates to a really high historical dividend yield of 9.7%. In comparison, the SPDR STI ETF (SGX: ES3), an exchange-traded fund which tracks the Straits Times Index (SGX: ^STI), only carries a yield of 2.6%.

Singapore Press Holdings’ high yield might entice income investors. But, it can be a big mistake to invest in any share purely because it offers an attractive dividend yield. To find great dividend shares, investors should instead focus on factors such as the strength of a company’s finances and the presence or absence of any competitive advantages in its businesses.

In here, I’d be taking a look at three aspects of Singapore Press Holdings’ finances which can give us clues on whether it can be a great income share. Let’s get started!

1. Dividend history

Financial year ended 31 August Dividend per share (Singapore cents)
2003 74.0
2004 20.2
2005 23.8
2006 24.0
2007 26.0
2008 27.0
2009 25.0
2010 27.0
2011 24.0
2012 24.0
2013 40.0

Source: S&P Capital IQ

A company’s track record in paying dividends can give investors some clues on management’s commitment in rewarding shareholders.

Singapore Press Holdings has been able to pay out dividends consistently for at least a decade so that’s a good sign. But, it also pays to note that the company has had trouble growing its dividend; this might not impress investors who are looking for dividend-growth shares.

2. Ability to generate free cash flow

Financial year ended 31 August Dividend per share
(Singapore cents)
Free cash flow per share (Singapore cents)
2003 74.0 14.1
2004 20.2 18.5
2005 23.8 19.1
2006 24.0 21.7
2007 26.0 23.6
2008 27.0 24.8
2009 25.0 15.8
2010 27.0 49.6
2011 24.0 32.2
2012 24.0 26.7
2013 40.0 25.9
Total S$3.35 S$2.72

Source: S&P Capital IQ

Dividends are ultimately paid with cash that a company has. That cash can come from a number of sources. A company can (1) raise capital from investors; (2) take on debt; (3) sell assets; or (4) earn it through its daily business activities. Although there can be exceptions, it’s generally more sustainable for a company to fund its dividends through the cash that’s generated from its business activities.

In light of that, companies which generate free cash flow in excess of their dividends paid give themselves some precious room for error during leaner business or economic environments.

Unfortunately, Singapore Press Holdings does not meet the mark here as the free cash flow it has generated falls short of the dividends it pays.

3. Balance sheet strength

Financial year ended 31 August Net cash (S$, millions)*
2003 451
2004 -98
2005 74
2006 141
2007 362
2008 279
2009 24
2010 -97
2011 -120
2012 -517
2013 -298
*Net cash = total cash minus total borrowings

Source: S&P Capital IQ

Generally speaking, companies with weak balance sheets run higher risks of seeing their dividends being negatively affected in the future. That can happen for a number of reasons. For instance, creditors can exert some control over a company’s use of cash through debt covenants. In addition, higher borrowings might mean higher interest payments, which saps a company’s cash flows and hence, its ability to pay a dividend.

In the case of Singapore Press Holdings, it’s worth noting that the company’s balance sheet has steadily weakened over the past decade to a point where it had a significantly high net-debt position as of 31 August 2013.

Foolish Bottom Line

Singapore Press Holdings does not fare too well against the three measures. Even though it has been paying dividends consistently, it has had trouble growing its pay-outs. In addition, it has not been able to generate adequate free cash flow and has seen its balance sheet deteriorate over the years.

Judging from its finances alone, it would seem that there are some improvements needed before Singapore Press Holdings can be deemed as an attractive income share. But like I mentioned earlier, this is not a holistic view of the overall picture. To arrive at a better conclusion on Singapore Press Holdings’ investing merits, investors should still spend time digging through the qualitative aspects of the company’s businesses.

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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.