The Motley Fool

Is Boustead Singapore’s Dividend Yield Sustainable?

Boustead Singapore Limited (SGX: F5D) is one of Singapore’s oldest companies, being incorporated in 1828. It is an engineering conglomerate with four major divisions – energy-related engineering, real estate solutions, geospatial technology, and healthcare technology.

Boustead is one of the companies which had continued to pay out steady dividends even through the Global Financial Crisis, which was one of the worst financial crises in our era since the Great Depression of the 1930s. The group has a competent and prudent management team, and its divisions can buffer each other in case of cyclical downturns. However, the bigger question now would be – is Boustead able to sustain its dividend payment moving forward? Let’s find out by investigating its free cash flow generation, balance sheet strength, and future prospects.

1. Free cash flow generation

Consistent free cash flow generation is a hallmark of a great dividend-paying company, as this means that there is always cash in the kitty for building up the balance sheet or rewarding shareholders.

Boustead has generated very healthy free cash flows for the last six fiscal years, with FY 2019 being lower than the other years due to contracts in progress. These contracts have sucked up working capital, thus impacting operating cash inflow. With a steady track record of free cash flow generation, it makes me confident that Boustead can afford to sustain its dividend.

2. Balance sheet strength

From the above table, investors should note that Boustead has always been in a net cash position, with cash per share moving as high as S$0.40 in FY 2018. Its significant net cash balance (and also the presence of highly-liquid available for sale securities) means that the group can tap on these balances for working capital and operating expenses if need be. Due to that, dividend payments should not be impacted.

3. Prospects – order book

Boustead has reported its highest order book ever at S$763 million as of 31 March 2019. Of this amount, S$103 million is under the energy-related engineering division, and S$660 million is under the real estate solutions division. This record order book level augers well for the group’s future profit and cash flow prospects, and is another piece of evidence to show that Boustead’s yield is indeed sustainable. By comparison, the order book as at 31 March 2018 was just S$307 million, of which S$89 million was in energy-related engineering and S$218 million in real estate solutions division.

The Foolish conclusion

The three attributes above provide investors with good assurance that Boustead can continue to sustain its dividend payments. In FY 2019, the group paid out a total of 3 Singapore cents (interim 1 cent and final 2 cents). At its last closing price of S$0.78, this represents a historical dividend yield of 3.8%.

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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. Motley Fool Singapore contributor Royston Yang owns shares in Boustead Singapore Limited.