ComfortDelgro Corporation Limited (SGX: C52) is a transport company with operations mainly in Singapore, Australia, the United Kingdom, and China. It’s the largest 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:
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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 the free cash flow and dividend payments in the last 5 years.
Free cash flow:
For ComfortDelGro to pay dividends, it must be able to generate cash, pay its bills, invest in capital expenditure and pay out dividends from the left over cash. In financial term, the leftover cash after paying the bills and capital expenditure is known as free cash flow.
The idea here is pretty straight forward – a company cannot sustainably pay out more dividend than its free cash flow in the long term.
So what we want to find out here is whether the company has kept its dividend payments in the past 5 years within its means.
So let’s look at a graph to illustrate the free cash flow and dividend paid in the last 5 years:
And for those who are interested in how the numbers are derived, please see below:
|Free cash flow analysis:|
|Operating cash flow||657||670||713||717||808|
|Interest and dividend received||17||16||16||17||17|
|Interest paid/payment to non-controlling shareholders||-33||-28||-33||-32||-31|
|Capital expenditure (net disposal)||-484||-415||-471||-388||-388|
|Free cash flow||182||102||196||313||405|
|Dividend paid to shareholders||130||138||165||183||199|
Source: Comfortdelgro 2012 to 2016 Annual Reports
Note – free cash flow calculation may not be exactly the same as other sources due to difference in adjustments used.
From the above, we can see that ComfortDelGro free cash flow to dividend payment has remained reasonable throughout the years. Only once in the last 5 years did the company pay more dividend that its free cash flow.
During the period, total free cash flow was about $1.2 billion whilst total dividend paid was about $0.8 billion.
ComfortDelGro has mostly kept dividend payments within its means in the last five years.
In the absence of any significant decline in free cash flow, the company should be able to sustain the current dividend payout ratio.
We will now proceed to our final test here.
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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.