The Motley Fool

2 Reasons I Find It Difficult to Invest in Keppel Corporation Limited

Keppel Corporation Limited (SGX: BN4) is a conglomerate with major business segments including offshore and marine, property, infrastructure, and investment.

In the last five years, Keppel Corporation’s stock price has declined by more than 40% from its high of above S$10. This has attracted value investors, including myself, to dig further into the company.

Yet, despite its lower share price, there are a number of things that make me uncomfortable about investing in Keppel. Let’s look at two of those.

Financial performance

One important criterion investors should focus on when assessing a company is how well its underlying business has performed in recent years.

A good track record will provide assurance to investors that the company will likely be able to sustain its business performance and, subsequently, its profitability for the foreseeable future.

Unfortunately, this is not the case for 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 decline in performance took place mainly in the last few years as a result of the decline in oil prices affecting Keppel Corporation’s offshore and marine business. Fortunately, the diversity of Keppel Corporation’s business structure has cushioned the overall profitability of the group for that period.

Thus, investors should be willing to stomach such volatility before investing in Keppel Corporation. Personally, it’s a little difficult for me to do so.

Volatile dividend payout

Another thing investors should consider when investing in Keppel Corporation is its volatile dividend track record. Let’s look at some numbers.

In the last decade, Keppel Corporation has seen its dividend per share (DPS) decline from 31.8 Singapore cents in 2008 to 30.0 Singapore cents in 2018. Though it has managed to pay a dividend every single year during the decade, the company’s DPS has been volatile. For example, DPS touched a high of 73.6 Singapore cents in 2012 before falling over the next few years to a low of 20 Singapore cents in 2016. Such track record makes it difficult for investors, especially dividend investors, to invest in the company.

Personally, I’m not a dividend investor, so dividend aren’t my priority. I don’t mind receiving sustainable and constant paychecks when investing in a company, but this would be a challenge if I invest in Keppel Corporation.

The Foolish bottom line

I think Keppel Corporation is still a worthwhile company to study further, mainly because of the diversity of its income sources. But personally, I find its declining financial performance and volatile dividend payout hard to stomach.

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.