How patient can you be once dividends start decreasing regularly and your favorite company reports negative cash rates? Anyone sticking with Keppel Corporation can clearly see its recovery and drop trajectories after investing in the company for years.
At this time, it might be wise for short-term investors to stay away from Keppel Corporation Limited because of poor growth data. However, long-term investors have nothing to fear because Keppel’s long-term strategy is likely to increase their assets. Read the full review of this dividend stock below.
Keppel Corp Ltd. is an investment holding and management company that has stakes in offshore and marine engineering and construction companies. It was founded in 1968 and has its headquarters in Singapore. Keppel Corp has a diversified presence in more than 20 countries, spanning 5 continents.
It has assets in the following areas:
- Offshore and Marine: production facilities, drilling rig design, construction, fabrication, repair, ship conversions
- Infrastructure: power generation, renewables, environmental engineering, and infrastructure operation and maintenance
- Urban Development: property development and investment, as well as master development
- Connectivity: provision of telecommunications services, retail sales of telecommunications equipment and accessories, development and operation of data centers, and provision of logistics solutions
- Asset Management: management of private funds and listed real estate investment and business trusts.
- Corporate: segment consists of treasury operations, research and development, investment holdings and provision of management, and other support services.
|Dec 2020 Financial Highlights|
|Gross Profit||S $466.06M|
|Operating income||S $-579.08M|
|Income before tax||S $-92.46M|
|Net income||S $-505.86M|
|Diluted EPS||S $-0.27|
|Dividends Per Share||S $0.10|
|Total Assets||S $32,105.87M|
|Total liabilities||S $20,949.97M|
|Total equity||S $10,728.45M|
|Operating cash flow||S $522.09M|
5-Year Performance Review
|2021||3.65%||S $ 0.19||S $0.12||2021-08-06||2021-08-19|
|2020||2.88%||S $ 0.15||S $0.03||2020-08-07||2020-08-20|
|2019||4.41%||S $ 0.23||S $0.08||2019-07-25||2019-08-06|
|2018||5.57%||S $ 0.29||S $0.1||2018-07-25||2018-08-07|
|2017||3.84%||S $ 0.2||S $0.08||2017-07-26||2017-08-08|
We can see from this chart the enormous dividend yield drop from the peak in 2018 down to 2.88%. We can see from this chart the enormous dividend yield drop from the peak in 2018 down to 2.88% in 2020. However, Keppel Corporation has slightly recovered at a 3.65% yield rate today, with a total of S $0.19 in 2021. However, this is still a far cry from its high dividend rates in the last four years.
Challenges Keppel Corporation Faces in 2021
Keppel might be one of the most formidable blue-chip companies in the country, but they’re not exempt from becoming problematic investments. In our analysis and books, Keppel isn’t a good investment right now. However, if you’re willing to sail out the storm, you might get big silver linings afterward.
Here are three challenges Keppel faces today. Take note of them before finalizing your investment with Keppel.
Inconsistent Dividend Payouts
A company that pays the same amount of money for dividends regularly signifies a strongly-performing company that you can count on. Even those with slight dividend value dips are considerably strong bets. Unfortunately, Keppel Corp dividend is neither of these two. In FY2015, the dividend for this company was $0.34 and fell to a low of $0.20 in FY2016 due to the oil-price crash. It rose to $0.22 in FY2017 before spiking again with a special dividend of $0.05 for FY2018 & 2019 combined.
Negative Free Cash Flow
A company with a small debt is a company that’s an excellent bet. Currently, Keppel is far from being a company with an excellent dividend share. The company has a lot of debt, reaching $12.7 billion by the end of June 2020. Even with that amount, they have a cash balance of just $2.4 billion, which is low compared to their total debt position. They are not off to a good start anytime soon!
Waning Industrial Operations
Keppel’s cyclical offshore and marine operations heavily contribute to its profits. Unfortunately, because of the 2020 pandemic, the division has increasingly suffered from poor activity, resulting in poor company productivity. As a result, it still has an ongoing poor performance given the current political climate.
Will Keppel Still Recover?
According to their official communication, Keppel intends to extend its investment segments into other areas to ensure growth. It promises that it can handle added debt to pursue these ventures with “sufficient headroom.” The ventures include acquiring SPH’s media assets through cash from internal funds, loans, and asset liquidation plans.
However, our analysis shows that Keppel’s gambit must pay off because their plan is largely unsustainable. Once it does succeed in acquiring SPH’s media assets, it can possibly increase its market value and pave the way towards having valuable digital information assets.
Dividend Volatility and Growth Potential
At the moment, it might be difficult to assess whether Keppel Corporation has become more stable or not after 5 years of its declining EPS. If its EPS is still shrinking at a significant rate, then you should be worried about your investment decision for this company. An earnings decline isn’t great because it can lead to shareholders receiving fewer dividends. Dividends falling too much could also cause the share price to drop significantly.
The company saw a loss when it reported its quarterly earnings, but it still paid its dividends. Despite such, this is an unfortunate situation for investors because it shows that the company may not be looking to reinvest in itself for growth.
Earnings per share have been struggling, and since we’re seeing cuts to dividends for this period, we can’t tell if the investments made will lead to. From this perspective, we believe Keppel isn’t an excellent short-term investment, but the high yield justifies that it’s worth looking at their long-term outlook for returns.
To Sum Everything Up
- Keppel’s plan to invest in new assets with borrowed cash is unsustainable but possibly a huge opportunity for growth if their plans succeed.
- Long-term investors will be content to know that we highly recommend Keppel in their respective portfolios because it will likely increase in value and dividends in the post-pandemic economy.
- Despite reporting losses, it is a concern to see that Keppel is still paying out dividends while it is not covered by the free cash flow. Investors may want to look into the shrinking dividend year by year as even the most conservative pay-out ratio could come under pressure if earnings are unstable.
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