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Singapore Post Limited Cuts its FY16/17 Dividend in Half: What to Expect Next

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 would have to be reduced.    

Looking forward

In Singapore Post’s FY16/17 annual report, the firm formally changed its dividend policy:

“The Board conducted a review of the dividend policy during the year.

To ensure that the dividends are sustainable, the dividend policy has been changed from an absolute amount to one based on a payout ratio ranging from 60 per cent to 80 per cent of underlying net profit for each financial year.”

Singapore Post also outlined the reasons for the change:

“SingPost’s dividends were previously supported largely by the domestic mail business which continues to see declining volumes. To provide future sources of earnings, we have made significant transformational investments in eCommerce and eCommerce logistics, as well as in the redevelopment of the SingPost Centre retail mall.

These investments will impact earnings in the short term, and the review of the dividend policy should be understood in this context.”

In short, Singapore Post is saying that there is an urgent need to invest heavily into transforming the company. The previous dividend levels were largely supported by a legacy domestic mail business which the firm believes will see lower volumes over time. Therefore, Singapore Post will need to seek new sources of revenue and profits.

With that in mind, Singapore Post lowered the dividends to 3.5 cents per share for the FY16/17. According to the firm, FY16/17’s dividend is about 66% of its underlying profit for the fiscal year.  

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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.