The Motley Fool

3 Reasons Why Venture Corporation’s Dividend is Safe

Venture Corporation Ltd (SGX: V03) was founded in 1984 as a global electronics provider and is now a global provider of technology solutions, products, and services. Venture’s technology ecosystems span four segments, Advanced industrials, Consumer/Lifestyle, Financial Technology, and Life Science & Instrumentation. Venture is listed on the Singapore market and sports a market capitalisation of $S4.3 billion currently. It recently released earnings and here are three reasons why I believe its dividend is safe.

Stable profits for the quarter

Let’s look at Venture’s numbers. For the quarter ended 30 June 2019, Venture reported a net profit of S$90.8 million for the quarter which was a 7.3% decline from the year before while first-half net profit increase marginally by 0.1% to S$181.7 million. This works out to 62.9 cents per share. This steady performance was on the back of a diversified portfolio of customers providing support amid the geopolitical and macroeconomic headwinds.

On a positive note, Venture maintained its margin at 10.1% compared to 10.3% over the same period in the previous year. This was due to its focus on its operational excellence which drove productivity gains. Being able to maintain its margin is a good sign that the company has its costs in control.

Strong free cash flow

Venture reported free cash flow (FCF) of S$220.2 million for the first half. This works out to approximately 69 cents per share. This comfortably supports its payment of a 20-cent interim dividend.

Additionally, Venture has a strong history of FCF generation supporting its high dividend payout.

Reasonable dividend payout ratio

Venture has seen its payout ratio decline from 90% in 2015 to 55% in 2018. With its payout ratio on the decline as the company increases its revenue and profits, investors should be assured that the dividend should be relatively safe.

It is also important to note that Venture shared these improved earnings with investors by hiking its dividend from 50 cents to 60 cents in 2017 and then to 70 cents in 2018. This is a good sign as it shows that the company is sharing its improved fortunes with its investors and shows the shareholder focus of the company.

Conclusion

To sum up, while Venture reported a slight slow down its business seems to be chugging along well. With its stable cash flows and a rather conservative payout ratio, the dividend yield offered by Venture (at 4.7%) seems to be rather secure as it is well within what the company can afford to dish out to investors.

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Motley Fool writer Esjay contributed to this article. Esjay does not own shares in any companies mentioned.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Tim Phillips owns shares in Venture Corporation Ltd.