Is ComfortDelGro Corporation Ltd’s Dividend Safe?

Credit: Simon Cunningham

In early February, land transport services provider ComfortDelGro Corporation Ltd (SGX: C52) released its 2016 fourth quarter earnings and proposed a final dividend of S$0.0605 per share.

This brought the company’s overall dividend in 2016 to S$0.103 per share, up by 14.4% from 2015’s dividend of S$0.09 per share. The increase in ComfortDelGro’s dividend raises the question: How safe is the company’s dividend?

Let’s look at three charts that I think can help provide some important insights on the safety of ComfortDelGro’s dividend.

The first chart is Chart 1, which plots the company’s ordinary dividend per share from 2006 to 2016. There are a few positive takeaways from the chart.

Firstly, ComfortDelGro has managed to pay an annual dividend in each year for the period under study, which includes the Great Financial Crisis of 2008-09. Secondly, the company’s dividend per share has displayed an unmistakable upward climb over the past decade; in fact, ComfortDelGro’s payout has grown consecutively in each year since 2009.

Chart 1 - ComfortDelGro's ordinary dividend from 2006 to 2016
Source: S&P Global Market Intelligence

Chart 2 is the next chart I have. It illustrates ComfortDelGro’s operating cash flow per share, free cash flow per share, and dividend per share from 2006 to 2016.

A company’s dividend is ultimately paid with cash and that cash can be obtained by the firm though a few different ways, such as (a) borrowing from banks and/or investors, (b) issuing new shares to investors, (c) selling assets, and (d) collecting the cash generated from its businesses.

The first three options are generally not sustainable over the long-run, leaving us with Option (d). This is why it is important to watch a company’s free cash flows. It is the actual cash flow from a company that is left after the firm has spent the capital necessary to maintain its businesses at their current states. The more free cash flow a company can produce in the future, the higher its chances of being able to dish out fatter dividends in the years ahead.

In the case of ComfortDelGro, although it has no clear record of being able to grow its operating cash flow and free cash flow, it has still managed to generate cash flows with some form of consistency. That’s a positive trait to have.

Chart 2 - ComfortDelGro's dividend, operating cash flow, and free cash flow per share from 2006 to 2016
Source: S&P Global Market Intelligence

We’re down to the last chart, Chart 3, and it plots the company’s net-cash position (cash and short-term investments minus total borrowings and capital leases) for the same timeframes as Chart 1 and Chart 2.

Dividends don’t come with guarantees. A company with a weak balance sheet can easily reduce or eliminate its dividend if its business environment deteriorates so as to meet demands from its creditors or to preserve its financial health.

Chart 3 shows us that ComfortDelGro’s balance sheet has grown sturdier in recent years. As of end-2016, the company has a net-cash position of S$419.9 million.

Chart 3 - ComfortDelGro's net-debt position from 2006 to 2016
Source: S&P Global Market Intelligence

Putting together what we’ve seen from Charts 1 to 3, ComfortDelGro currently has a strong balance sheet and has a good track record of (a) consistently generating operating cash flow and free cash flow, and (b) growing its dividend.

Based on the three charts alone, ComfortDelGro’s dividend looks reasonably safe to me. But, it’s also important to carefully consider the prospects of the company’s business – something I did not do above – before any firm investment conclusion can be reached. Take all you’ve seen here about ComfortDelGro simply as a useful starting point for further research.

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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.