The Motley Fool

Is ComfortDelgro Corporation Ltd’s Dividend Yield of 4% Sustainable?

ComfortDelgro Corporation Ltd (SGX: C52), or CDG, is a land transport conglomerate with a total fleet size of 43,000 buses, taxis and rental vehicles. The group has operations in Singapore, China, the United Kingdom, Ireland, Australia, Vietnam and Malaysia.

With CDG’s taxi division undergoing structural shifts, investors may worry about whether the group can continue to maintain its 4.3% dividend yield. Here’s a look at several aspects of CDG that can help us to determine this.

Revenue and profit consistency

The above table summarises CDG’s revenue and profit numbers over the last five financial years. Though overall revenue has not increased significantly over the five years, it has been fairly stable. The same goes for net profit, which increased from S$283.5 million to S$303.3 million in a four-year period. Consistency is the keyword here, even as growth may be elusive for now.

Free cash flow

Consistent free cash flow (FCF) generation is the hallmark of a great dividend-paying company. For CDG, its FCF has steadily risen over the years to a high of S$442.7 million in 2018 despite net profit and revenue being relatively flat. This is a positive sign for investors, as it shows that CDG has the ability to sustain or even increase its dividend pay-out.

Dividend steadily increasing

CDG’s dividend history is reassuring as the group has been steadily increasing dividends over the years. The largest increases were in 2015 and 2016 and came despite mounting pressure and competition from ride-hailing outfits such as Uber and Grab. Though dividend increases have moderated in 2017 and 2018, investors should note that the group has sufficient cash resources and generates copious FCF to be able to sustain the higher payments. In H1 2019, CDG further increased its interim dividend to 4.5 Singapore cents, up from 4.35 Singapore cents in H1 2018.

The Foolish conclusion

From the above, I conclude that CDG is well able to maintain its current dividend yield of around 4.3%. With its recent string of acquisitions still in the process of being fully integrated into the group, and with the upcoming ride-hailing company licensing scheme, CDG may see revenues and net profits improving. This will lend further support to my belief that CDG can and will sustain or even increase its dividend payments.

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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.