Right now Singapore Post Limited (S08) share price is at SGD$0.720
At this price, SingPost is valued at price-to-book ratio of 1.008 and a trailing distribution yield of 3.056%
With the current valuation, would I invest in it?
Let’s go through it using my 7 steps guide and see how I pick the Best Singapore Dividend Stocks.
Recommended Read: Warren Buffet’s 5 Characteristics of a Good Dividend Paying Stock
Singapore Post Limited is the dominant provider of domestic an international postal service in Singapore. Founded in 1819 and incorporated in 1992, the company was an exclusive provider of basic mail service in Singapore until 2007, and a non-exclusive provider until 2017.
- Post & Parcel (Mail business to both local and international)
- Logistics (eCommerce)
- Property (Retail service)
- Fulfilment and distribution
SingPost is currently focusing on seeking new eCommerce growth opportunities
in Singapore, Australia and the Asia-Pacific region by improving their Business-to-Business-to-Consumer (‘B2B2C’) logistics capabilities.
Check for: Less than 0.5 D/E Ratio
Looking at the latest annual report for Year 2020.
SingPost have a D/E ratio of 0.282.
This is lower than 0.5 D/E Ratio.
With a D/E ratio of less than 0.5, this means, the company’s operation is generally driven by the equity. Low level of debt will also mean a health balance sheet, an important attribute of a good dividend stock.
The company is having an low risk of defaulting.
My Opinion: Pass
Check for: More than 2.5% dividend yield
For Year 2020, SingPost pay a dividend of 0.022 which translate to a dividend yield of 3.361%.
This is higher than my target of 2.5%.
The amount of dividend distributed year-on-year from 2017 till date is much lower than 2016. SingPost was the exclusive distributor for postal service before year 2017.
I believe that the loss of the exclusive rights have an major impact to the distribution of the dividend.
Nonetheless, the dividend yield from 2017 till date have been stable and lies in the range above 2.5%.
As it is higher than the risk free rate (CPF OA Account) of 2.5%. I will give it a verdict of pass.
My Opinion: Pass
Dividend Payout Ratio
Check for: Less than 80% dividend payout ratio
At the time of writing, a quick check using some of the online tools shows that the dividend payout ratio for SingPost is 92.05% which is above my threshold of 80%.
A payout ratio of more than 80% is a red flag for any dividend investors (REITs are an exception). With a payout ratio of more than 80% means the company will not have enough cashflow to weather the storm if there is any unexpected events.
I don’t think SingPost should have such a high dividend payout. They should have reinvest their cash into their business.
Personally, I think they really need an upgrade for their system to prepare for the eCommerce and improve their logistic capabilities.
My Opinion: Fail
EPS Growth Rate
Check for: More than 10% EPS Growth
Earning Per Share (EPS) is probably what I will be drilling into for dividend stocks. Since this company have been around for such a long time, I will probably have high expectation on their EPS.
Quick check on the 2020 annual report.
The EPS 5 year growth rate is a shocking -10.472%! OMG!
Yup, the EPS growth for SingPost is a whopping Negative 10%!
This is very bad!
Not only they are not growing their EPS, but their earning have been shrinking at a rate of 10% each year, for the past 5 years.
My Opinion: Fail
High Return Of Equity (ROE)
Check for: More than 10% ROE
ROE is one of the most important ratio used by Warren Buffett and his disciples.
Return of Equity gives us an idea of how well is the money being used by the management of the company. Higher the value the better it will be for the investors.
At the time of writing, the ROE of SingPost have an ROE of 5.488%!
Although an ROE of around 5% isn’t all that bad, but it is way lower than my threshold of 10%.
The company’s management seems to be just average.
My Opinion: Fail
Check for: P/B Ratio of less than 1.8
SingPost is a multi-million dollar blue chip company with a long rich history of providing postal service locally and internationally.
Therefore, the price of the stock will most likely be traded above it’s valuation (book value).
At the time of writing, the current P/B ratio of SingPost is 1.008.
Meaning, it is trading at 0.8% premium to its book value, which I think is very reasonable.
My Opinion: Pass
Check for: Not just having a MOAT, but a great MOAT
SingPost is the dominate player in Singapore for postal and mailing service.
Although they are the dominate player, people usually have a few criteria when selecting their courier providers.
Criteria When Selective Courier Providers:
- Speed of delivery
- Cost of each delivery
- Reliability of the courier provider
Honestly, in my opinion, SingPost not too bad in meeting these criteria. But there are many other courier providers available which are pretty good as well.
Some of SingPost competitors are:
- Ninja Van
With so many competitors on their tail, I don’t think SingPost have a very good MOAT.
According to Phil’s book Rule#1 investing, SingPost may have 2 MOATs;
- A very weak “Switching MOAT” as it is the only provider that have physical location of their postal service in Singapore.
- A “Brand MOAT”, as it is a well known service providers to most Singaporeans.
With the popularity of door-to-door service, the factor of having physical location of their service may not be as important as it was previously. Thus, the “Switching MOAT” is very weak.
My Opinion: Partially Pass
SingPost have a final score of 6/10.
With a payout ratio of >80% and EPS growth rate of negative, I think this is not a dividend stock that I will like to invest.
But on the flipside, SingPost is currently having a low D/E ratio.
Therefore, I will keep SingPost on my watchlist.
Below is how I’ve scored SingPost.
|My Singapore Post Limited’s Score Card|
|Debt to Equity Ratio||High (2)||2|
|Dividend Yield||Low (1)||1|
|Dividend payout ratio||Low (1)||0|
|EPS Growth Rate||Low (1)||0|
|High Return of Equity (ROE)||Low (1)||0|
|Acceptable Price-to-Book Ratio||High (2)||2|
If you want to learn more, here are the 3 metrics I’ve found to be more important:
Would you invest in SINGPOST?
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