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Does Singapore Exchange Limited Have Room to Raise Its Dividend?

Singapore Exchange Limited (SGX: S68), or SGX, is Singapore’s sole stock exchange. The group provides a platform for the trading, buying, and selling of securities such as equities, fixed income, and derivatives. SGX also provides settlement, listing, and clearing services to listed companies.

SGX has been paying a total dividend of S$0.30 a year for the last two fiscal years (FY 2018 and FY 2019 — the group has a 30 June year-end). Investors have been relying on SGX for steady and consistent dividends as the group pays a quarterly dividend, which is a boon for investors looking for a regular stream of income. The current dividend level is already an increase from the previous S$0.28 a year, which was kept constant for four consecutive years (from FY 2013 to FY 2017).

The question now is, does SGX have the capacity and room to further raise its total dividends?

Revenue and profit at a high

First off, SGX had reported a stellar set of earnings for FY 2019 — revenue was at a record high (since its IPO in 2000) of S$909.8 million, while net profit hit an 11-year high of S$391.1 million, up 8% year on year. SGX’s earnings per share for FY 2019 stood at 36.5 Singapore cents, up from 33.9 Singapore cents a year ago. With a full-year dividend of S$0.30, the payout ratio was 82%.

In contrast, the payout ratios for the prior two fiscal years, FY 2018 and FY 2017, were 88.5% and 88.3%, respectively. If the payout ratio for FY 2019 had been at the same 88% level, the full-year dividend would have been higher, at S$0.32.

Resolution with NSE

Looking to the future, SGX just announced that it had received a set of regulatory dispensations from the statutory regulators with respect to its ongoing dispute with the National Stock Exchange of India (NSE). Both parties have agreed on a proposed NSE International Financial Service Centre (IFSC)-SGX Connect for the trading of Nifty products, located in Gujarat International Finance Tec-City (GIFT) in order to create a larger pool of liquidity for market participants.

This is positive news for investors as it resolves the long-standing dispute with NSE on the trading of Nifty products, and it paves the way for SGX to tap into Indian equity markets to grow its derivatives division further.

Bolt-on acquisitions

In SGX’s post-results conference briefing, CEO Loh Boon Chye mentioned that SGX will be undertaking bolt-on acquisitions to strengthen its various divisions. A lot of these opportunistic acquisitions already took place in FY 2019 (such as Trumid, BidFX, and Freightos) and are set to continue into FY 2020.

Such acquisitions have the potential to add on to SGX’s suite of capabilities and provide a boost to any weaknesses each division may have.

Room for further dividend growth

I believe SGX already has room to increase its dividends, as evidenced by its stellar FY 2019 performance. Management prefers to remain prudent and gun for more sustainable growth in earnings before deciding to raise the dividend. Assuming the derivatives division continues to grow, and the above initiatives result in a stronger overall performance, I can definitely see the group declaring higher full-year dividends in the future.

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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore has recommended shares of Singapore Exchange Limited. Motley Fool Singapore contributor Royston Yang owns shares in Singapore Exchange Limited.