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The Hunt for High Dividends – Part 2

Credit: Simon Cunningham

Earlier, we told about using the new Singapore Exchange screening software on its website to look for companies with a high dividend yield. Out of the three results, two were errors made by the screening software. There is, however, one company, that isn’t an error.

And the company is …

This company has a dividend yield of 6.44%. It is also a large and reputable company, with a history of 30 years, and a market capitalisation of S$2.1 billion. I am talking about Venture Corporation Ltd (SGX: V03). The company founded in 1984, is one of the largest electronic contract manufacturer in the region. With multiple manufacturing sites in China, Malaysia and Singapore, the company has sales over S$2.3 billion and profits of over S$130 million last year.

The company declared a 50 Singapore cent per share dividend last year, giving investors a dividend yield of 6.44%. More importantly, the dividend payout is only slight more than the net income of the company, indicating that the company is paying out dividends from its earnings, and not dipping in its cash reserves.

What are the risks?

Contract manufacturing is not a new and exciting industry. It is the exact opposite of new and exciting. The industry is high competitive, cyclical in nature, with weak operating margins. In fact, Venture Corp has seen its sales dropped from S$2.68 billion in FY2010 to S$2.33 billion in FY2013. Its profits are also under pressure, sliding from S$188 million in FY2010 to S$131 million in FY2013. Thus, if Venture Corp is unable to turnaround its fortunes, the high dividend payouts might not be sustainable.

Possible growth area

The good news is the company has been recording growing revenue and profit growth for the last few quarters. Furthermore, Venture Corporation’s customers are mostly large multinational companies. As the global economy continues to recover, we might see their orders with Venture Corp increasing as well.

Foolish Summary

Investors need to examine if the dividend rate is sustainable and there is a possibility for the company to continue to grow in the future. As it stands, Venture Corporation might be the highest yielding company listed in Singapore at the moment.

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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 Stanley Lim does not own any companies mentioned above.