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Singapore Post Limited Cuts Its Dividend: Here’s What Investors Should Know

Mail and logistics services provider Singapore Post Limited (SGX: S08) took the decision to reduce its interim dividend by 33% in its most recent quarter, the second-quarter of its fiscal year ending 31 March 2017 (FY16/17).

The transformation

Singapore Post had signalled that it would review its dividend policy during its annual general meeting (AGM) held in July this year.

Back then, chairman Simon Israel made a case for the urgent need to transform Singapore Post into an eCommerce and logistics services provider.

In Singapore Post’s earnings presentation for the second-quarter of FY16/17, the company shared the following statement:

“Dividends in the past had been largely supported by the domestic mail business, which continues to see declining volumes.

To provide future sources of earnings, significant transformational investments have been made in eCommerce, eCommerce Logistics and in the redevelopment of the SPC retail mall.”

Israel also said this in the company’s latest earnings release:

“In the short term, however, these investments will impact earnings. We have raised capital and taken on debt to fund these investments. The need to review the dividend policy should be understood in this context.”

In short, Singapore Post has to make a choice between reinvesting its profits into its business transformation initiative or to pay out its profits as a dividend. With this in mind, Singapore Post’s dividend policy has been adjusted to reflect its current situation:

“The dividend policy has been changed from an absolute amount to one based on a payout ratio ranging from 60% to 80% of underlying net profit for each financial year, paid quarterly.”

Singapore Post reported earnings per share (EPS) of 1.28 cents in the second-quarter of FY16/17. The interim dividend was 1 cent per share, representing a 78% payout ratio. For reference, Singapore Post has made 2.76 cents in EPS in the first six months of FY16/17 and has declared 2.5 cents in dividends.

It would appear that dividends will still be around at Singapore Post, albeit at a lower level. Israel also said this:

“The Board is very aware of the importance of dividends to our shareholders and the objective is to grow underlying earnings and dividends over time.”

If Singapore Post is able to grow its earnings in the future, exchanging current dividends for future potential could be worth it. But that is still a big IF at the moment.

Investors will have to observe how Singapore Post’s business performs in the future.

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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.