Is Venture Corporation Ltd’s 6.5% Dividend Yield Worth Chasing? – Part 1

At its closing price yesterday of $7.74, Venture Corporation Ltd’s  (SGX: V03) shares offered a historical dividend yield of 6.5% based on its annual dividend of S$0.50 per share in 2014.

That’s a high yield when we consider that the SPDR STI ETF (SGX: ES3) – an exchange-traded fund tracking the fundamentals of Singapore’s market barometer the Straits Times Index (SGX: ^STI) – has a yield of just 2.8%.

Besides having a tasty yield, Venture, an electronics manufacturing services provider, has also been paying steady dividends over the past five years.

Financial year ended 31 December Venture’s dividends per share
2010 S$0.55
2011 S$0.55
2012 S$0.50
2013 S$0.50
2014 S$0.50

Source: Morningstar

These traits (the high yield and steady dividends) make Venture attractive as a dividend stock. But, as Foolish investors, we should dig a little deeper to see if its dividends are sustainable and whether it is able to grow its dividends in the future.

To do that, we can study the company’s top-line, cash flow, and balance sheet. We’ll start with its top-line in this article.

A closer look

Venture serves a variety of industries as can be deduced by its various product segments, namely: Printing & imaging; Networking & communications; Retail store solutions & industrial; Computer peripherals & data storage; and Test & measurement / medical & life science / others. Primarily, the firm serves customers in the Asia Pacific region.

Product Segment Venture Corp

Source: Venture’s earnings reports

It has been a bumpy road for Venture over the past five years from 2010 to 2014.

Both its Printing & imaging and Networking & communications product segments have seen significant declines in revenue. This was offset by some gains in revenue from the Retail store solutions & industrial segment and the test & measurement / medical & life science / others product line.

The big shift

In Venture’s 2010 annual report, management signalled that the company would be shifting its business mix towards technology services and solutions with greater design and engineering content.

From the graph above, we can observe that the printing & imaging segment has seen its revenue shrink; this has caused the segment’s contribution to Venture’s overall revenue to decline from 20% in 2010 to just 11% in 2014. Meanwhile, the test & measurement / medical & life science / others product segment has grown from being 22% of Venture’s total revenue in 2010 to 32% in 2014.

In all, the business-mix shift has had its impact on Venture’s top-line. Revenue for Venture had declined by around 9% over the five year period under study.

Looking forward

To be sure, there are some bright spots in Venture’s new product segments as well. According to a research report by Maybank, Venture has been able to secure new customers such as leading US-based genomic firm Illumina, Inc. Furthermore, Venture had also engaged an industry leader in the growing 3D printing space for business.

These may be the areas with Venture where we want to keep an eye on for the future.

Check in here for the second part of the series which looks at Venture as a dividend stock.

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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.