E-commerce, or online retail, is growing quickly many parts of the world. According to market researcher Statista, global business-to-consumer (B2C) e-commerce sales had stepped up by 16.5% from US$1.058 trillion in 2012 to US$1.233 trillion in 2013. Forecasts from Statista then pegged the B2C e-commerce market to be able to grow to US$2.356 trillion by 2018. There are a number of companies in Singapore that can potentially benefit from the rising tide of e-commerce. Two higher-profile companies that fit the bill – by virtue of their billion-dollar market capitalisations – are Global Logistic Properties Ltd (SGX: MC0) and Singapore…
E-commerce, or online retail, is growing quickly many parts of the world.
According to market researcher Statista, global business-to-consumer (B2C) e-commerce sales had stepped up by 16.5% from US$1.058 trillion in 2012 to US$1.233 trillion in 2013. Forecasts from Statista then pegged the B2C e-commerce market to be able to grow to US$2.356 trillion by 2018.
There are a number of companies in Singapore that can potentially benefit from the rising tide of e-commerce. Two higher-profile companies that fit the bill – by virtue of their billion-dollar market capitalisations – are Global Logistic Properties Ltd (SGX: MC0) and Singapore Post Limited (SGX: S08).
|Global Logistic Properties||S$9.72 billion|
|Singapore Post||S$3.89 billion|
Source: S&P Capital IQ
Global Logistic Properties is either the top or the second in countries like China, Brazil, Japan, and the U.S. when it comes to the modern logistics properties market. These properties in turn provide the much needed back-end support to enable e-commerce to flourish.
Singapore Post on the other hand, has a fast-growing Logistics business segment which is also tapping into the e-commerce market. In the first-half of Singapore Post’s fiscal year ending 31 March 2016, the segment’s revenue had jumped by 43.5% year-on-year to S$156.1 million. The revenue number is more than half of Singapore Post’s total revenue of S$263.2 million for the same period.
For investors who would like some dividends from companies that have the potential to ride on the growth of e-commerce, which of the two aforementioned stocks might be the better choice? To answer the question, we can compare a few important aspects of their business fundamentals, namely, their dividend yields, dividend growth rates, balance sheet strength, and payout ratios.
A stock’s yield tells us how much bang for our buck we’re getting in dividends from it. Here’s a simple illustration: A stock with a yield of 5% will be paying out S$50 in annual dividends if we have S$1,000 invested in it. You can probably tell that the higher the yield is, the fatter the payout will be for investors.
In terms of yields, Singapore Post takes the cake. At its current share price of S$1.80, it has a yield of 3.89% thanks to its dividend of S$0.07 per share in its fiscal year ended 31 March 2015 (FY2015). Global Logistic Properties only manages to offer a yield of 2.68% at its latest price of S$2.05; the company’s dividend in FY2015 came in at S$0.055 per share.
While the past is not a perfect indicator of the future, it is still useful as a guide for helping us to think about what lies ahead. This is where a stock’s historical dividend growth comes into play.
Source: S&P Capital IQ
On the basis of historical dividend growth, Global Logistic Properties has the upper hand. The firm only started paying a dividend in FY2012, but has since seen its payouts grow by 68% in total. Meanwhile, Singapore Post’s dividends have only stepped up by 40% overall from FY2005 to FY2015.
Balance sheet strength
Dividends do not come with guarantees. A company with a weak balance sheet that’s bloated with debt is at risk of having to lower or completely cut its dividends – either due to pressure from creditors or a simple lack of cash – even if its business runs into the slightest of speed-bumps.
On the other hand, a strong balance sheet – one that is flush with cash with little debt – gives a company a better chance of protecting its dividends in the event of inevitable downturns in the business environment which can happen every now and then.
That’s not the only benefit of a strong balance sheet. Without the shackles of leverage, a company with a solid balance sheet can even mount an offense in poor economic environments when its financially-weaker competitors have to batten down the hatches. This helps plant the seeds for potentially higher dividends in the future.
Singapore Post comes out tops in this area. As of 30 September 2015, the logistics and mail outfit had S$239 million in total debt but S$327 million in cash & equivalents on its balance sheet. This stands in contrast to Global Logistic Properties, which had more debt than cash & equivalents as of the same date (US$3.89 billion in borrowings vs. US$2.22 billion in cash & equivalents).
When it comes to gauging the room for error that a company has to maintain or grow its dividends in the future, payout ratios can be useful things.
There are two types of payout ratios that we’re interested in here. The first measures a stock’s dividend as a percentage of its earnings (let’s call this the earnings payout ratio) while the other measures the dividend as a percentage of free cash flow (let’s call this the cash flow payout ratio).
In general, the lower the payout ratios are, the more buffer there is for a company to absorb untoward business developments.
Source: S&P Capital IQ; author’s calculations
As you can see from the chart just above, Global Logistic Properties is superior here with its much lower payout ratios in both the earnings as well as the cash flow variety.
A Fool’s take
In a final tally, we have a tie here as Global Logistic Properties and Singapore Post had each won two of the four categories.
Notably, all that we’ve seen above shouldn’t be taken as the final word on the investing merits of the two aforementioned stocks. A deeper look into their businesses will still be required before any investing decision can be reached.
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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 writer Chong Ser Jing doesn't own shares in any companies mentioned.