MENU

Would Benjamin Graham Buy Hutchison Port HoldingsTrust?

Hutchison Port Holdings Trust (SGX: NS8U) is a Business Trust. It is engaged in developing, operating and managing deep water container ports in the Guangdong Province, Hong Kong and Macau.

The company is currently is making bottom-line losses. Not only has the company made losses of late but it has also seen its net income fall. This is due largely due to a subdued period for maritime trade.

However, one benefit of a business trust – at least from the perspective of investors – is that it does not have to make a profit before paying its investors a dividend.

In the case of Hutchison Port Holdings, the dividend yield on offer just happens to be one of the best available among the companies listed on the Singapore Stock Exchange.

Currently standing at 7.3%, the dividend yield is more than three times the risk-free return available.

However, generous dividend yields alone does not a value share make.

HPH Trust’s price to book stands at around one suggesting the company is probably priced about right. It certainly does not seem as under-priced, as it does from looking at the dividend yield alone.

But what about risk?

As well as suffering falling net income, HPH Trust does not seem to provide the security in terms of assets that a value investor such as Benjamin Graham would hope to see in an investment.

A current ratio of 0.72 would suggest that HPH Trust might struggle to pay of its debtors if required to immediately. The current market capitalisation prices the business trust at over four times the value of its current assets.

HPH Trust’s impressive dividend yield will attract the interest of some investors, particularly those who might be drawn by a steady income. However, the seemingly high levels of risk that are associated with the company that has also suffered growing losses make it a risky investment.

That coupled with a lack of a margin of safety are unlikely appeal to value investors.

The Motley Fool's purpose is to help the world invest, better. Click here now for your FREE subscription to Take Stock -- Singapore, The Motley Fool's free investing newsletter. Written by David Kuo, Take Stock -- Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.

Like us on Facebook to keep up-to-date with our latest news and articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Adam Kuo doesn’t own shares in any companies mentioned.