Where to Next for the Steady Dividend-Payer Keppel Telecom & Transport Ltd?

Shares of Keppel Telecom. & Transport. Ltd. (SGX: K11) has inched ahead of the market over the last six years. The company’s shares are up 85% from 1 Jan 2009 to its closing price of S$1.50 on 23 December 2014. In comparison, the capital gains of the SPDR STI ETF (SGX: ES3) was 80% for the same duration. The SPDR STI ETF is a proxy for the market barometer, Straits Times Index (SGX: ^STI).

Keppel T&T is a subsidiary of marine engineering, property development, and infrastructure conglomerate Keppel Corporation Limited (SGX: BN4) – the latter owns close to 80% of the former. Over the past five years between 2009 and 2013, Keppel T&T has distributed a steady annual dividend totaling 17 cents per share.

Year Dividend per share (Singapore cents)
2009 3.0
2010 3.5
2011 3.5
2012 3.5
2013 3.5

Source: S&P Capital IQ

Although the shares of Keppel T&T have inched ahead and its dividend has remained steady, as Foolish investors, we should look behind the curtain to understand how the firm can support its dividend in the future.

A closer look

There are two major divisions within Keppel T&T, the Logistics Division and the Data Centre Division. The Logistics division provides various logistics services including integrated port operations, supply chain solutions, warehousing and distribution, and freight forwarding services.

Meanwhile, the Data Centre Division provides data centre co-location services. There is also the Investments Division which is the investment holding arm of Keppel T&T for various entities not within the first two divisions.

Where to Next for This Dividend Paying Subsidiary of Keppel Corporation? - 2 

Source: Company Earnings Report

Keppel T&T managed to grow its topline at an annualized compounded rate of 7.4% in the five financial years above (the company’s financial year coincides with the calendar year). In 2013, more than two thirds of Keppel T&T’s revenue came from the logistics division with the rest coming mainly from the data centre division. Although a smaller player, the data centre division is actually the one which contributed the most in terms of Keppel T&T’s revenue growth by expanding by more than seven times over the past four years.

Next, let’s look at where Keppel T&T derives its revenue from.

Where to Next for This Dividend Paying Subsidiary of Keppel Corporation? - 1

Source: Company Earnings Report

As seen in the chart immediately above, Singapore comes up tops in the geographical contribution of revenue. It made up 72% of Keppel T&T’s total revenue in 2013. The company has four logistics facilities in Singapore, covering 144,300 square metres of warehouse space with automated storage capacity of 19,000 pallets.

For the financial year 2013, the company also revealed that China made up 23% of its topline. Singapore, in addition to being the biggest geographical source of revenue, is also the main spigot for revenue growth, expanding close to 70% over the five years between 2009 and 2013.

Foolish summary

The exercise above is to look at the sales of Keppel T&T alone. As a next step, we should observe if the company’s topline growth can trickle down to the bottom-line so that it can sustain its dividends and growth in share price

But, that’s for another article.

As of its closing price on 23 December 2014 of $1.50, Keppel T&T traded at a trailing price/earnings ratio of about 12.6, and has a dividend yield of around 2.3%.

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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.