SATS Ltd (SGX: S58) is a company providing gateway services and food solutions, mainly to the aviation industry. The group was listed in 2000 and is now present in 60 locations across 13 countries in Asia and the Middle East.
I decided to review the group to assess its investment merits, and I found two aspects which investors would love about the group — its Return on Equity and its dividend payout. I used an average of six years’ worth of data to compile a trend, as shown below.
The return on equity (ROE) metric measures the financial performance of a company and is an indication of the level of profits generated for each dollar of equity. In a nutshell, a higher ROE signifies that a company is generating higher returns for investors for every dollar of capital invested in it. The formula for ROE is net income divided by total shareholders’ equity.
SATS’ ROE started off at 12.8% in fiscal year (FY) 2014, and saw steady improvements through the years to hit a high of 16.7% in FY 2017. Though ROE dipped back to 15.1% for FY 2019, the trend over the six years is still that of a rising ROE. Though it remains to be seen if SATS can continue to improve on this, the prospects are good as the group has entered into many alliances and joint ventures, all of which should start contributing to its bottom line in the years to come.
The dividends trend of a company is a reflection of both its growth and also willingness to pay out more of its cash to reward shareholders. In the case of SATS, I believe it is the former, as underlying net profit has grown from S$183 million in FY 2014 to S$241.4 million in FY 2019. In line with this improvement net profit generation, dividends for the group have also risen in tandem.
SATS has increased its annual dividend every single year since FY 2014, starting off with 13 Singapore cents and ending off with 19 Singapore cents in its most recent fiscal year (FY 2019). This should provide investors with the confidence that the group will continue to raise dividends as long as the business continues to grow.
At its closing share price of S$5.11 as of 18 June 2019, SATS had a trailing dividend yield of 3.7%.
The Foolish takeaway
The above two aspects of SATS shows the long-term growth trend of the company under its CEO Alex Hungate. Along with tailwinds in the industry (i.e. rising tourism numbers in Asia and the planned capacity increase for Changi Airport) and also SATS’ investments in food catering and production businesses in Asia, the future looks promising for the group.
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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 SATS Ltd. Motley Fool Singapore contributor Royston Yang owns shares in SATS Ltd.