Singapore Press Holdings Limited (SGX: T39), or SPH, is a conglomerate whose core business is in the publishing of newspapers, magazines, and books in both print and digital editions. It also has a property arm that owns 70% of a real estate investment trust called SPH REIT (SGX: SK6U). SPH is in the aged care sector and owns Orange Valley, Singapore’s largest private nursing home operator.
The question now is whether SPH still qualifies as a good dividend stock, as the group has been facing headwinds in its core print media division. For the first half of fiscal year 2019 (H1 FY 2019), which ended 28 February 2019, the group declared an interim dividend of 5.5 Singapore cents per share, down from 6 Singapore cents a year ago. The trailing total annual dividend stood at 12.5 Singapore cents for a trailing dividend yield of 5.3%.
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Declining core publishing business
SPH has been suffering from a multiyear decline in its core publishing business, with total readership of both its English and Chinese-language newspapers hitting eight-year lows. The graph below shows the extent of this decline, which seems to be continuing despite the group’s attempts at promoting its digital media. This stems from alternative sources of news being made available through the internet, which takes away readership from SPH’s publications.
Source: SPH FY 2017/2018 Annual Report
In its latest H1 FY 2019 earnings release, the segment report shows that the media division continues to suffer from a decline in revenue, from S$329.5 million to S$296.2 million. However, profit before tax remained relatively stable at S$42.1 million for H1 FY 2019 compared to S$43.8 million for H1 FY 2018.
Entry into the aged care and student accommodation sectors
SPH’s property division is the main driver of profit and accounts for 66% of total profit before tax even though it only makes up 29.4% of revenue (for H1 FY 2019). The group’s stake in SPH REIT provides it with steady income, while the timely entry into the aged care sector in the form of Orange Valley has also helped boost earnings and cash flow.
In addition, in April 2019, SPH also announced the acquisition of a portfolio of purpose-built student accommodation (PBSA) assets in the UK for a consideration of S$237.0 million. With this acquisition, SPH’s PBSA portfolio now has a total capacity of 5,000 beds across 20 assets in 10 cities, with asset under management of S$600 million.
Source: SPH 2017/2018 Annual Report
SPH’s dividend has been declining in the last five fiscal years, as shown in the chart above. The group has suffered from significant declines in its media business, while also spending significant sums to acquire Orange Valley and PBSA assets.
A good dividend stock? It depends
The good news is that SPH now has a stronger foundation in its property portfolio, which should mitigate the declines in profit and cash flow from its media division. Whether or not the dividend can remain stable, or even rise, depends on the group’s plans for acquisitions as well as the performance of the newly-acquired assets. Investors should continue to monitor the property division to see if it can replace the decline in profits from the media division.
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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.