My confidence in SPH as a secured dividend company just took a hit

Q2 earnings reporting has already started. As usual, the first one off the block in my watchlist was SPH Reit and then followed by SPH. Being an income investor, the first thing that I looked out for was the dividend.

SPH Reit declared DPU of 1.41 cents close to that of the same quarter last year while SPH declared 5.5 cents, down 0.5 cents (or almost 9%) from 6.0 cents for the same quarter. I am disappointed with SPH’s reduced dividend. Many other investors also took issue with this reduced dividend as SPH share price was sold down from $2.54 before to 2.43 today, a drop of 4.3% in the space of a few days.

Looking back at the same period last year, after the release of their Q2 results, investors actually held the share price constant at about $2.55. Since the interim dividend declared then was 6.0 cents, the implied yield was about 2.35%.

With a lower dividend declared this year, I guess we should expect a lower share price as  the “fair value” assuming everything else is equal. If the expected yield is 2.35%, then back-calculating with the 5.5 cents dividend, “fair value” will drop to $2.34 … hmm this is about 10 cents lower than current price. So, the risk for further erosion of SPH share price is still here.

Furthermore, the fact that SPH had lowered their interim dividend, it may also be signaling that the final year dividend may drop 😦

Looking at the recent developments around SPH, I am also worried that SPH will need more cash. One is to fund their share of the investment with Keppel in M1. It also wants to develop new large properties and grows new businesses like student accommodation. Growing new business need lot of CASH!

The more I think of it, the more I don’t feel that SPH is a secured dividend paying company anymore. The horror memory of M1 and Starhub dropping their dividends rapidly compounds my worry.

But everything has a fair price, I will probably look at SPH again at the < $2.30 price mark. As for my current holding of SPH shares, I guess I will just hold and collect dividends. Selling them now will mean a major loss in capital.

For next week – it will be a series of “Keppel shows”. I am vested in Keppel Corp but it is not their tradition to declare any dividend this quarter. So, for me, nothing to really look forward to. It is the following week that I am really excited about :-).

Till then, take care folks and have a nice weekend.

Regards,

Warriortan

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