Where to Next for This Consistent Dividend Payer?

SembCorp Industries Limited (SGX:U96) has been a steady source of dividends for close to six years. From 1 January 2009 to 10 December 2014, the utility and marine stalwart has collectively paid out a total of S$0.91 per share in dividends.

The share price for SembCorp Industries has been keeping up with the market as well. From 1 January 2009 to its closing price on 10 December 2014, the company has delivered capital gains of around 79%. By comparison, the total returns of the SPDR STI ETF (SGX: ES3), a proxy for the Straits Times Index (SGX:^STI), was 79% as well for the same duration. When the dividends are included, the total returns of SembCorp Industries comes out ahead of the capital gains of the SDPR STI ETF for the period above.

Topic du jour

Prior to this, I have written about SembCorp Industries’ business segments. Beyond that, I have also delved deeper into the individual business segments – namely, the utilities business segment and the marine business segment. Today, I would like to look at the geographical spread of SembCorp Industries’ Utilities business segment. For reference, revenue for its marine business segment is mainly derived from Singapore alone.

A closer look

For the Utilities segment, the company can act as a developer, owner, or operator of utility projects worldwide; these projects include both power plants and wastewater treatment and management plants.

Where to Next for This Consistent Dividend Payer? - 1

Source: Company Earnings Presentation

From the graph above, we can see that majority of the revenue and growth in sales for the Utilities business segment has come from Singapore alone. For 2013, Singapore made up 82.7% of sales for the Utilities business. That said, the revenue growth trends from China and Middle East has been encouraging, increasing by more than five times over the five year period above.

In the years ahead, we should be expecting revenue contribution from India as well. In particular, the NCC Power Project (NCCPP) in India will be a significant step forward. According to Chief Executive Officer Tang Kin Fei, the land area for the NCCPP project would equivalent to one third the size of Jurong Island.

To add to that, SembCorp Industries has also announced a conditional joint-venture on 15 September 2014 with ChongQing Energy Investment Group which could put it within striking distance of its 10,000-megawatt (MW) power generation goal by 2015. So, we can also expect more future revenue from China as well.

Where to Next for This Consistent Dividend Payer? - 2

Source: Company Earnings Presentation

Although overseas revenue for the Utilities segment is relatively smaller, the importance of the overseas ventures becomes apparent from the net profit contribution. For 2013, Singapore only contributed a little over half of the company’s net profits for its Utilities business. Meanwhile, revenue from geographical segments as such the rest of ASEAN, Australia & India, China and Middle East & Africa boasted an outsized contribution of 33% of net profits. With the overseas projects in China and India in mind, we should keep an eye on whether SembCorp Industries’ is able to keep filling its coffers with profits.

Foolish takeaway

As lifelong students of Foolish long term investing, it pays to look under the hood to understand whether the dividends paid by the company is supported by the quality of profits that we are looking for.

The overseas projects for SembCorp Industries is bringing strong net profits, and this is where Foolish investors might want to focus on. Overall, the visible project pipeline seems to indicate a stable growth moving into the future for the Utility business segment of SembCorp Industries.

As of the closing price of $4.34 on 10 December 2014, SembCorp Industries currently trades at a price-to-earnings ratio of about 10 and has a dividend yield of 5%.

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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.