Keppel Corporation Limited (SGX: BN4) is a conglomerate with four business divisions, namely, Offshore & Marine, Property, Infrastructure and Investments.
Is Keppel Corp an excellent dividend stock for income-hungry investors? To help us answer that, let’s dive into the conglomerate’s dividend yield, dividend history, dividend sustainability and much more.
Keppel Corp closed at S$6.67 per share on 27 August. At that price, the company had a dividend yield of 3.6%.
For context, the SPDR STI ETF (SGX: ES3) had a distribution yield of 3.5% on the same day. The SPDR STI ETF is an exchange-traded fund (ETF) that tracks the fundamentals of Singapore’s stock market barometer, the Straits Times Index (SGX: ^STI). Keppel Corp is one of the 30 components of the index.
Dividend amount and payout periods
For the financial year ended 31 December 2017, Keppel Corp dished out a total ordinary dividend of 22 Singapore cents per share.
The company pays its dividends in two parts – the first part, which is the interim dividend, is paid out for the second quarter while the second part, the final dividend, is given out for the fourth quarter.
In 2017, Keppel Corp dished out eight cents as an interim dividend and 14 cents as a final dividend, totalling 22 cents as mentioned earlier. For the last twelve months, the conglomerate paid out 24 cents in total ordinary dividend.
The following shows Keppel Corp’s dividends from 2007 to 2017:
Source: Keppel Corporation Limited corporate website (Note: In 2011, Keppel Corp issued one bonus share for every 10 existing ordinary shares. Dividends paid per share have been adjusted for the bonus issue in 2011 and the sub-division of shares in 2007.)
Keppel Corp’s yearly dividends from 2007 to 2012 increased on a consistent basis. However, since then, its dividend payout has been erratic.
Keppel Corp does not have a dividend policy. However, the company has been paying a certain percentage of its earnings as dividends annually.
In Keppel Corp’s 2016 annual report, chief executive Loh Chin Hua explained:
“We believe in rewarding shareholders fairly and sustainably. While we do not have an explicit dividend policy, investors who have been following Keppel Corporation know that we have had a consistent track record in distributing 40-50% of our annual net profit as dividends. …
It is very important that we are able to pay stable dividends as well as balance the Company’s capital requirements, especially in the challenging and uncertain period before us. As we improve the overall quality of earnings through our business model, we will also grow recurring income to better fund our capital spending and dividends.”
To find out if a company has sustainable dividends, we can compare its free cash flow to the amount in dividends that it pays out. Companies which pay less than 100% of their free cash flows leave some room for dividend increases in the future.
The following shows Keppel Corp’s free cash flow and total dividend paid since 2013:Source: S&P Global Market Intelligence (LTM = last twelve months)
In the last twelve months, Keppel Corp paid out less than 100% of its free cash flow as dividends. If the conglomerate can grow, or least maintain its free cash flow in the years ahead, the current dividend should be sustainable.
Dividend yield history
The following chart shows Keppel Corp’s dividend yield for the past two decades, from December 1998 to end August 2018:Source: S&P Global Market Intelligence
Keppel Corp has an average dividend yield of 3.5% for the period shown above, which is around its current dividend yield.
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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 Sudhan P doesn’t own shares in any companies mentioned.