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What Does ComfortDelgro Corporation Limited’s Balance Sheet Tell Investors About Its Dividend

ComfortDelgro Corporation Limited (SGX: C52) is a transport company with operations mainly in Singapore, Australia, the United Kingdom, and China. It’s the largest private taxi operator in Singapore and also the majority owner of vehicle and non-vehicle testing and inspection outfit Vicom Limited (SGX: V01) and bus and rail services operator SBS Transit Ltd (SGX: S61).

As a quick recap, what we are trying to do here is to address the following question:

Is ComfortDelGro’s current dividend sustainable in the foreseeable future?

To address the above question, we will use three simple tests 1) the company’s track record in making profit 2) free cash flow and dividend analysis 3) balance sheet strength to give us an overview.

In this article, we will look at the analysis of balance sheet strength. Readers can click here and here for the other parts of this analysis.

Balance sheet strength:

Dividends are paid out to investors in the form of cash.

This cash for dividend, in turn, is generally derived from one of the following 3 sources – 1) existing cash balance 2) free cash flow from the current year’s operation 3) new borrowings

In other words, a company must have enough cash in hand or at least have the ability to borrow money (if necessary) to pay its dividend. Generally speaking, a company with a strong balance sheet has the resources needed to help fund its dividend.

To gauge the strength of a company’s balance sheet, we will look at two things:

  • Current cash balance and
  • Total-debt to shareholder’s equity ratio (total-debt refers to total borrowings and capital leases).

Here, a strong balance sheet is one that has plenty of cash and a reasonable debt to equity ratio (not more than 100%).

With that, let’s do a quick overview of the strength of Comfortdelgro’s balance sheet:

Latest cash balance and investments: $692.2 million

Latest net debt to equity ratio: net cash at $300.9 million

Source: Comfortdelgro FY17 Quarter 1 Financial Statements

From the above, we can see that ComfortDelGro has a strong balance sheet with net cash position.

Conclusion:

In summary, we can see that ComfortDelGro should have few problems in sustaining its dividend payments for the foreseeable future, driven by the sustainability of its income, strong free cash flow and strong balance sheet.

The ability of ComfortDelGro to sustain its dividend payments will depends on how well the group can cope with the near and long-term challenges in the transport industry. The former is driven by disruptors like Uber and Grab whilst the latter by new technology like autonomous cars.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.The Motley Fool Singapore has recommended shares of SBS Transit. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.