SATS Ltd (SGX: S58) is a company providing food solutions and gateway services solutions. The Food Solutions covers airline catering, food distribution, industrial catering whereas Gateway Solutions is involved in ground handling services of passengers, flights and cargo.
In the last 12 months, the company’s stock price was down by more than 15% from its high of S$5.85 to S$ 4.90 (as of writing). Its lower share price might look attractive to different investor groups, one of which is the dividend investors.
This article focuses primarily on this group of investors. In particular, we will like to highlight a number of reasons why SATS might be a good candidate for dividend investors to hold for the long term.
Solid financial track record
Investors make money from stock investment in two ways – increase in share price and dividend payments. Both factors, in turn, are driven by how well a company can sustain and grow its profitability in the long run.
Here, the idea is simple. A company that has a proven track record has a higher probability of sustaining its profitability in the future, which in turn, will result in higher share price and/or dividend payments.
Personally, a good track record is one that is either stable or growing over a period of at least five years.
Here’s how SATS performed in the last five years. During that period, profit after tax has grown by 45.8% from S$182.1 million in FY 2013-14 to S$265.5 million in FY 2017-18. This gives a compound annual growth rate of 9.9% during the period. Similarly, earnings per share (EPS) was up from 16.1 cents to 23.4 cents during the same period.
Personally, I think SATS demonstrated a good performance in the past five years in growing its profitability.
Growing dividend payment
One of the key criteria that investors look for when investing in a company is the track record of dividend payment. The key here is to look for stable, or even better, increasing dividend payment over the years.
In the case of SATS, investors will like to see growing dividend payments throughout the last few years since SATS has been growing its profitability over that period. The good news is that SATS did just that! In the last five years, it has grown its dividend per share from S$ 0.13 in FY2013-14 to S$0.18 in FY2017-18. In other words, the dividend was up by 38.5% during the period.
The past is no guarantee of the future. Yet, SATS’s track record of growing its dividend payment gives us some confidence that it will maintain a similar dividend policy in the future. Thus, as long as it can grow its profitability over time, dividend investors should expect to see higher dividend payments in the future.
In sum, SATS demonstrated that it has the ability to grow its business performance, and subsequently, its dividend payout over the last five years. Such factors will definitely appeal to dividend investors.
And if you enjoy the above article, read our next installment to learn another reason why SATS might be a good candidate for dividend investor now.
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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 Lawrence Nga doesn’t own shares in any companies mentioned. The Motley Fool Singapore has a recommendation for SATS.