Here’re What Investors Need to Know About Keppel Corporation Limited’s Dividend and Debt

Keppel Corporation Limited (SGX: BN4) released its 2016 third-quarter results just last week.

In Keppel Corp’s earnings presentation, management had shared some insights on its thoughts on the company’s dividend and debt. I thought these are things that may interest investors.

On dividends

Keppel Corp paid out a total of S$0.34 per share in dividend in 2015. This was a 29% reduction from the S$0.48 in dividend that the conglomerate dished out in 2014.

There wasn’t better news in the second-quarter of 2016 as well. The company reduced its interim dividend to S$0.08 per share, down from the S$0.12 interim dividend for 2015.

During the 2016 third-quarter earnings presentation, questions were raised on the sustainability of the company’s dividend. Loh Chin Hua, Keppel Corp’s chief executive, shared his thoughts:

“… whatever dividends that we declare, it must be on the basis that looking at the Group’s need for cash, looking at the growth opportunities that we have and the businesses that we are in. The dividends the Board declares for the shareholders to approve must be at a level that we believe is sustainable.”

This is consistent with what was said by Chan Hon Chew, Keppel Corp’s chief financial officer, earlier this year. After sharing the quote above, Loh went on to talk about the company’s dividend policy:

“We do not have an explicit dividend policy, but we have so far paid out about between 40-50% of the Group’s earnings.”

Investors may want to note that Keppel Corp managed to generate S$560 million in free cash flow in the third-quarter of 2016. But, the company also took on more debt, compared to a year ago.

On debt and the balance sheet

Keppel Corp’s balance sheet was also a concern that was raised during the 2016 third-quarter earnings presentation.

The company’s net -debt (total borrowings minus cash and equivalents) stood at S$7.33 billion in the second-quarter of 2016. The net gearing ratio was 0.62 times. In the third-quarter of 2016, net debt came down to S$6.77 billion while the net gearing ratio declined to 0.57 times. But in the third-quarter of 2015, Keppel Corp’s net debt and net gearing ratio was S$6.03 billion and 0.52 times, respectively.

Previously, both Loh and Chan had said that they would like to keep the company’s gearing way below one. In the latest earnings briefing, Loh said this:

“Net gearing increased by 4% from 53% at the end of 2015 to 57%. However, in comparison to second quarter of 2016, net gearing has decreased 5% from 62%. This was due mainly to proceeds from recycling of assets such as the divestment of our stake in Life Hub @ Jinqiao, proceeds from sale of development projects, and the receipt of retention monies from our EPC projects in Qatar.”

The situation remains challenging for Keppel Corp. Foolish investors might want to keep monitoring the company’s balance sheet and free cash flow in the coming quarters for clues on its future dividends.

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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 Chin Hui Leong doesn't own shares in any company mentioned.