Singapore Post Limited Cuts its FY16/17 Dividend by Half: What Investors Should Know

Singapore Post Limited (SGX: S08) paid out seven cents in dividends per share for the financial year ended 31 March 2016 (FY15/16).

But that didn’t last. In FY16/17, the logistics provider reduced its dividends to 3.5 cents. The decision might not be surprising, given the tumultuous period that Singapore Post had to endure in FY16/17.

In late 2015, a crisis of confidence erupted at Singapore Post when its chief executive, Wolfgang Baier, abruptly resigned. The company’s corporate governance was also called into question. At the end of it, eight directors stepped down while a new chairman, Simon Israel, took the helm. Israel wasted no time in outlining the challenges that Singapore Post faced, and made the argument that the company will need to invest to change.

The investment needed also meant that dividends will have to be reduced.

Looking back

Singapore Post may be seen as a steady dividend payer in the past. In its FY15/16 annual report, the firm wrote:

“Over the years, the Group has consistently committed to – and even grown – its dividend payouts, notwithstanding significant investments in new growth areas.

Since our IPO, SingPost has made total dividend payments of 90.41 cents per share – compared to the IPO price of 60 cents per share.”

Furthermore, Singapore Post also outlined its intention to pay out seven cents per share in dividend for FY15/16:

“The Group aims to make a total annual ordinary dividend payout of 7 cents per share, barring unforeseen circumstances.

Taking into consideration factors such as financial performance, capital expenditure and investment requirements, the Board believes that the Group is able to maintain the dividend policy, enhancing shareholder returns while retaining financial flexibility.”

… But it was not to be

Ultimately, the logistics provider followed through with its commitment in FY15/16, paying out seven cents per share. However, it was a rate that could not be sustained in the following year.

In last year’s annual general meeting (AGM), new chairman Simon Israel made a case for the urgent need to transform Singapore Post to an eCommerce and logistics provider. But investments for the transformation would require significant investments.

In other words, Singapore Post had to make choices between reinvesting its profits into its business transformation initiative or to pay it out as a dividend.

As we have found out in FY16/17, Singapore Post prioritised the former over the latter.

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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.