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.
We discussed the first two reasons this might be a good dividend stock in an article here. As a quick recap, those reasons were:
- Solid financial track record
- Growing dividend
In this article, we will continue with the final reason.
Balance sheet strength
Dividends are paid out to investors in the form of cash. The cash, in turn, is generally derived from one of the following sources – 1) existing cash balance 2) profits and 3) new borrowings
In other words, a company must have enough cash in hand or at least have the ability to borrow money (if necessary) to pay its dividend. Generally speaking, a company with a strong balance sheet has the resources needed to help fund its dividend.
In the case of SATS, not only did it deliver a solid track record of profitability in the last five years (discussed here), it also has a solid balance sheet that should sustain its dividend payment for the foreseeable future. As of 30 September 2018, SATS has S$281.7 million worth of cash and S$96.4 million worth of debt (for a net cash balance of S$185.3 million).
In sum, SATS demonstrated that it has the ability to grow its business performance and dividend payout in the last five years. What’s more, it has a strong balance sheet that will allow it sustain its current dividend payment for the foreseeable future.
As such, dividend investors might find it an appealing candidate for further research.
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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. Motley Fool has a recommendation for SATS Ltd Group Ltd.