There’s nothing an investor likes more than to receive dividends from one of their investments. However, there’s an even greater satisfaction when dividends are increased. One such company, Boustead Singapore Limited (SGX: F9D), or Boustead for short, looks poised to increase its dividend payout after suffering from years of depressed demand in a cyclical downturn.
As a recap, Boustead is one of Singapore’s oldest conglomerates and has four key divisions – energy-related engineering, real estate solutions, geo-spatial technology, and healthcare. For the last few years, the group’s two key divisions have been mired in weak demand and falling margins, resulting in the group slashing dividends in line with poorer profitability. However, there are clear signs emerging that this is about to change.
Boustead’s two key divisions – energy-related engineering and real estate solutions – suffered from downturns in recent years. For energy-related engineering, the plunge in oil prices, from above US$100/barrel in 2014 to around US$60/barrel currently, caused many oil majors to withhold their capital expenditure plans. This resulted in a plunge in orders for Boustead’s three oil and gas sub-divisions. Meanwhile real estate solutions, represented by 53%-owned Boustead Projects Limited (SGX: AVM) and which carries out projects relating to industrial real estate, also suffered from an oversupply situation whereby rental rates were depressed.
There are tentative signs of a recovery showing for energy-related engineering, as Boustead’s latest 3Q FY 2019 earnings announcement showed. As oil and gas prices staged a modest recovery over the last 12 months, orders started to come in and division margins also improved slightly. The recovery is expected to pick up pace into the next fiscal year 2020 as oil majors restart their projects and contracts start to trickle down to oil and gas mid and downstream players.
As for Boustead Projects, the company recently announced a record order book of S$679 million, as the company managed to clinch two large contracts, expanded into Vietnam and also clinched a contract to develop an aerospace and high-tech park in Malaysia.
Strong balance sheet and healthy cash flow generation
Boustead’s management has always maintained a strong balance sheet with its focus on prudence and caution. Net cash per share takes up around 29% of the current share price of S$0.80, and the group has generated very healthy free cash flow every single year for the last five fiscal years (since FY 2014).
Due to the troubles in both their major divisions, dividends were reduced from 7 Singapore cents in FY 2014 to 4 Singapore cents in FY 2015, then to 2 Singapore cents in FY 2017. Yet FY 2018 saw a slight increase in the total dividend to 3 Singapore cents and Boustead looks poised to announce a better dividend in light of its record order book, the recovery in oil and gas, and also the acquisition of its new healthcare division in June 2018.
Better dividends on the horizon
Investors should pay attention to companies that are emerging from multi-year slumps as this may indicate a significant uptick in the company’s prospects. With that comes naturally higher dividends as well. For Boustead, it appears that there is a fairly high chance of the group declaring better dividends for not only the remainder of FY 2019 but also for FY 2020 as well.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Boustead Singapore Limited and Boustead Projects Limited. Motley Fool Singapore contributor Royston Yang owns shares in both Boustead Singapore Limited and Boustead Projects Limited.