Though conglomerates usually have complex structures that render them difficult to understand, such structures also provide them with a hedge for the volatility in profits. In other words, they could be good long-term investments.
In this article, we will try to find out which company is a better buy to consider over the long run. We are going to put the duo into two simple tests now to help us make our decision.
Financial track record
To start with, we will compare the financial performance of both companies in the last decade. This will help us assess the sustainability of the companies’ performance in the future. Also, we can find out which company has had a better growth rate over this period.
With that, let’s look at some numbers. We will start with Keppel Corporation. From 2008 to 2018, Keppel Corporation’s revenue declined from S$11.8 billion to S$6.0 billion in 2018. Similarly, net profit attributable to shareholders fell from S$1.1 billion in 2008 to S$948 million in 2018. The former was down by about 49% while the latter weakened 14% during that period.
And now ST Engineering. During the same period, its revenue grew from S$5.3 billion in 2008 to S$6.7 billion in 2018. Similarly, net profit attributable to shareholders grew from S$474 million in 2008 to S$494 million in 2018. The former was up by 26% while the latter improved by 4% during that period.
From the above, we can see that ST Engineering delivered a better financial performance in the previous decade.
Winner: ST Engineering
Dividend track record
The next comparison I’ll look at is the dividend track record for the last 10 years. This will give us some indication of what we should expect in the future.
Let’s begin with Keppel Corporation. In the last decade, Keppel Corporation has seen its dividend per share (DPS) decline from 31.8 cents in 2008 to 30.0 cents in 2018. During this period, the company’s DPS has been volatile. Still, it has managed to pay a dividend every single year during the decade.
And now for ST Engineering. Its DPS fell from 15.8 cents in 2008 to 15.0 cents in 2018. Still, the company has paid a dividend every year in the past decade, with the DPS sustained at 15.0 cents in the last five years.
As we can see, both companies saw their DPS fall over the decade. Comparatively, ST Engineering’s dividend payout was more stable while Keppel Corporation’s payout was more volatile.
It’s a tie
Overall, I think ST Engineering might be the better stock to consider given its stronger financial performance and stable dividend track record.
Still, investors should be reminded that the above looks mainly at past performance. Thus, investors should also consider the future prospects of both companies before investing their money.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.