The More Attractive Tourism Dividend Stock: Genting Singapore PLC or Straco Corporation Ltd?

Genting Singapore PLC (SGX: G13) and Straco Corporation Ltd (SGX: S85) may differ wildly in terms of their size – they have market capitalisations of S$12.9 billion and S$666 million, respectively – but the two companies do share a strong common thread. Both are largely dependent on tourism spending in Singapore.

In Genting Singapore’s case, it counts Resorts World Sentosa as its main business asset. The integrated resort is a tourism landmark in Singapore and some of its attractions include a casino, the Universal Studios Singapore theme park, and an oceanarium.

As for Straco, its business depends largely on two aquariums in China and the Singapore Flyer, which is one of the world’s largest observation wheels. In 2016, the Singapore Flyer accounted for 32.2% of Straco’s overall revenue.

Investors looking at the two companies may wonder, which would be the better dividend stock? Let’s find out by looking at four important aspects of their business fundamentals, namely, their dividend yields, the historical growth in their dividends, their free cash flow pay-out ratios, and the strength of their balance sheets.

Dividend yield

At Genting Singapore’s current stock price of S$1.07, it has a dividend yield of 2.80% thanks to its annual dividend of S$0.03 per share in 2016. Straco, on the other hand, has a better yield of 3.23% given its stock price of S$0.775 at the moment and its dividend of S$0.025 per share in 2016.

Historical growth in dividends

Both companies have managed to grow their dividends at impressive rates over the past five years. But, it is Genting Singapore that has the better track record given that its dividend of S$0.03 per share in 2016 is 200% higher than its dividend of S$0.01 per share in 2012. Straco’s dividend has grown by 100% from S$0.0125 per share to S$0.025 over the same period.

Free cash flow pay-out ratios

The free cash flow pay-out ratio measures a company’s dividend as a percentage of its free cash flow. In general, the lower the ratio, the better it is.

In 2016, Genting Singapore and Straco both aced this measure – for the year, they had free cash flow pay-out ratios of 32.9% and 33.9%, respectively. Genting Singapore has the slightly lower ratio, but the margin between the two companies is so tiny that a draw here seems to be a reasonable conclusion.

Balance sheet strength

As of 31 December 2016, both Genting Singapore and Straco had pretty strong balance sheets, given their net-cash positions. The former had S$4.96 billion in cash and equivalents and S$1.16 billion in total borrowings, while the latter had S$163.2 million in cash and equivalents and S$61.9 million in total borrowings. With these numbers, it would be a tie here too.

A Foolish conclusion

In sum, both companies have strong balance sheets and healthy pay-out ratios. Meanwhile, Genting Singapore is the one with the faster historical growth in dividends while Straco has the higher dividend yield. Putting all of these together suggests that both companies are equally decent dividend stocks.

But, it’s also worth noting that all we’ve seen above about Genting Singapore and Straco should not be taken as the final word on the investing merits of both companies. Take them as useful starting points 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 owns shares in Genting Singapore and Straco.