A Look At Keppel Corporation Limited’s Track Record as a Dividend Stock

Keppel Corporation Limited (SGX: BN4) is a company that has consistently paid an annual dividend over its last 10 fiscal years.

But that is then and this is now. Can Keppel Corp sustain its dividend in the future? Thing is, there is no easy answer.

Unlike a stock’s dividend yield, which is easy to calculate, there is no simple calculation that can tell investors for sure whether a company’s dividend is sustainable.

Fortunately, there are still 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 profit history, (2) the company’s pay-out ratio, and (3) the strength of the company’s balance sheet.

Profit history

A company’s profits are an important source of its dividends. What I would like to find out is if Keppel Corp has seen any losses or big dips in profit over the past five years.

Keppel Corp's net income table - Lawrence (2)
Source: S&P Global Market Intelligence

From the numbers above, we can see that Keppel Corp has suffered a few years of double-digit profit declines. All told, its net profit has fallen by more than 21% since 2011.

The pay-out ratio

In investing parlance, the pay-out ratio refers to the amount of a company’s profit that is paid out to shareholders as a dividend and it is often expressed as a percentage.

There are two related things to keep in mind in general. First, pay-out ratios should be less than 100% as it’s tough for a company to sustain its dividend if it’s paying out all its profit. This brings me to the second point – the lower the pay-out ratio is, the better it could be.

A low pay-out ratio would mean that a company has some room for error when it comes to sustaining its dividends in the future.

Keppel Corp has a trailing dividend of S$0.30 per share and trailing earnings of S$0.653 per share. This works out to a pay-out ratio of 46%.

Strength of the balance sheet

Generally speaking, companies with strong balance sheets (balance sheets that are not saddled by heavy debt) have a better chance of being able to protect their dividends.

There are many angles we can look at to gauge the strength of a company’s balance sheet. One of them is the net-debt to shareholders’ equity ratio (where net-debt refers to total borrowings and capital leases net of cash and short-term investments). A ratio of over 100% would mean that a company’s net-debt outweighs its shareholders’ equity.

Based on its latest financials, Keppel Corp has a net-debt to shareholders’ equity ratio of 65%. One thing worth noting about the ratio is that it has been climbing in recent years.

A Fool’s take

To sum it up, Keppel Corp is a company that has seen big declines in profit over the past few years. But, it is also a company with a pay-out ratio of just 46% and a net-debt to shareholders’ equity ratio of 65%.

What we’ve seen here with Keppel Corp may provide useful insights, but it should not be taken as the final word on the company’s investing merits – as I had mentioned earlier, there are many other aspects of a 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.