Dividend investors like to invest in companies that can sustain dividend payments over the long term.
Nevertheless, there are smaller companies that have good potential to become solid dividend stock in the long term.
In this article, we will look at this company that’s well-positioned to deliver good returns to dividend investors in the next few years.
The company that we will be looking at here IS SBS Transit Ltd (SGX: S61).
For starters, SBS transit operates public bus and rail services in Singapore. It operates mainly in two segments: Public Transport Services (the bus and rail services) and Other Commercial Services (advertising and rental income).
SBS Transit is a subsidiary of the local land transport giant ComfortDelGro Corporation Ltd (SGX: C52).
Solid dividend track record
One of the very first thing that dividend investor will assess before investing in any company is the company’s dividend track record. Here, investors will be looking for stable, or even better, rising dividend payment over the years.
The good news is that SBS Transit did just that in the last five years. From 2014 to 2018, not only has it paid dividend every year, it has also grown its dividend per share from 2.3 cents in 2014 to 12.90 cents in 2018.
Clearly, the company did well in growing its dividend payment in the last few years. But can it continue to do so in the future? Here’s what we will explore in the next point below.
Supported by solid financial performance
For SBS Transit to continue paying sustainable dividends, it must have a strong underlying business that can deliver sustainable profitability over the long term. Here, investors can get some assurance if the transport operator has delivered stable (or better growing) revenue and net profit in last few years (at least five years).
So how did the company perform lately? Here’s some numbers: From 2014 to 2018, revenue was up from S$ 951 million to S$1384 million. Profit attributable to shareholders performed even better, up from S$14 million to S$80 million. The former was up by 46% while the latter jumped 471% during that period.
Now, there’s no guarantee that SBS Transit can have the same strong growth going forward. Still, the transport operator will likely sustain its existing performance as long as it continues to serve the public well while maintaining its cost-efficiency.
In sum, dividend investors might want to have a look at SBS Transit given its strong dividend and financial track record.
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. The Motley Fool Singapore has recommended the shares of SBS Transit Ltd.