A Look At Comfortdelgro Corporation Ltd’s Track Record as a Dividend Stock

Land transport giant Comfortdelgro Corporation Ltd (SGX: C52) is one of those companies in Singapore’s stock market that has consistently paid an annual dividend over its last 10 fiscal years.

Investors may thus wonder: What would happen to Comfortdelgro’s dividend in the future?

Sadly, there’s no easy answer for the important question above. A stock’s dividend yield is easy to calculate. But there’s no formula that can tell us for sure whether a company can sustain or grow its dividend in the future.

That said, there are some things about a company’s business we can look at for clues. Here are three of them, keeping in mind that they are not the only important aspects: (1) The company’s historical profits, (2) the company’s pay-out ratio, and (3) how strong the company’s balance sheet is.

Historical profits

It’s tough for a company to pay a dividend if it has no profit. Let’s take a look at Comfortdelgro’s net profit over the past five years to see if it has been negative or suffered any big declines:

Comfortdelgro's net profit table
Source: S&P Global Market Intelligence

Turns out, Comfortdelgro is a company that has managed to grow its profit consistently for the timeframe we’re looking at.

The pay-out ratio

The pay-out ratio involves only simple math: You divide a company’s dividend with its profit.

There are two things to keep in mind with the ratio in general. First, pay-out ratios should be less than 100% as it can be a tall order for a company to sustain its dividend if it’s paying out all its profit all the time. Second, the lower the ratio is, the better; a low pay-out ratio usually corresponds with a thick margin of error for a company when it comes to protecting its dividend.

In the case of Comfortdelgro, its 2015 dividend of S$0.09 per share and earnings of S$0.141 per share gives it a pay-out ratio of 64%.

Strength of the balance sheet

Dividends are paid out to investors in the form of cash. Thus, a company must have enough cash in the till, or at least have the ability to borrow money if necessary, to pay its dividend. Generally speaking, a company with a strong balance sheet has a better chance of having the resources needed to help fund its dividend.

There are many numbers investors can look at to estimate the strength of a company’s balance sheet. But, let’s just look at the amount of cash and debt that Comfortdelgro has.

Based on its latest financials (for the first-quarter of 2016), Comfortdelgro holds S$888 million in cash but total borrowings of just S$487 million. In other words, the company’s cash hoard handily outweighs its debt.

A Fool’s take

To sum it up, Comfortdelgro is a company with (1) consistent profit growth over the last five years, (2) a payout ratio lower than 100%, and (3) more cash than debt.

I’d like to point out again that all that we’ve seen with Comfortdelgro above should not be taken as the final word on its investing merits – as I had mentioned earlier, there are many other aspects of the company’s business to study when it comes to assessing the sustainability of its dividend.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.