Note:All Figures for this article can be found in this google spreadsheet here.
2 Years ago, i did talk about SBS Transit. The SBS transit you all curse and swear when they don’t come on time. The same SBS transit that you think is earning mega big bucks at the expense of you the poor commuters.
Well perhaps its not so compelling anymore.
I did an update on my Dividend Stock Tracker on SBS transit data. For those that are new, i run a dividend stock tracker [link here>>] with daily updates of stock prices and its corresponding yield.
I was hoping that there will be some improvement but alas, they were not able to recover.
When you click on the stock name at my dividend stock tracker, you get this information.
Here are some of the big changes
Cash fell to 1% of market cap
There was a large drain in cash. For these 2 years, there is a large replacement and expansion of bus fleet such that substantial capex is required. As such, their cash is drain for dividends and capital expenditure
Free Cashflow ensures 4.8% yield might be unsustainable.However……
This chart [2002 -2009] says it all. Although operating cashflow (blue) is doing better for 2009, Capex (red) shows a substantial increase at the expense of dividends(orange).
Although i say it is not sustainable, i am of the opinion that this increase in capex is only one time only.
Should the capex fell back to 50 mil, they can affort to pay out 150-50 = 100mil
They paid out 25 mil in 2009, i think they can paid out another 25 mil for a 50 mil dividend. That might translate to a 10% yield. The rest they can keep for contingency plans.
Already you are seeing their 2010 first payout to be substantially at $0.043 compare to $0.036 same time in 2009.
I forecast that next years yield might be $0.043 + $0.0055 = $0.098. Thats likely to be a 5.4% yield at $1.81
However, this is just an educated guess.
I am still deliberating whether they can afford to pay out the current 4.8% yield for long. For the past 4 years, Free cashflow have been lower than the dividend payout, meaning they are exhausting cash. Thats not a bad thing if they have too much of it sitting around and they dunno what to do with it.But we do hope we invest in a business that is generally low capex and high in free cashflow.
Like i say above, i forecast the capex to go down substantially so we should have positive free cashflow for 2010.
Is SBS Transit a compelling buy? Alot will depend on more deep research. I would post any thing i can find here if i can.
Alot will hinge on its operating environment. Would they be subjected to this huge capex again? How frequent will they need to do that.
I believe SBS Transit will not go out of business anytime soon, but its not a business that has much growth. If you expect to have a yield better than fixed deposit, your question is whether its risk is low. I believe its operating environment in Singapore is defensive and therefore its risk is lower than many dividend yield stocks.
However, how much earnings yield is enough to compensate my risk? I think it should be around 5%-7%.
Thus my buy decision will depend on my research on its operations going forward and how it affects its forward dividend yield.