When it comes to dividend consistency, there aren’t many stocks that can lay a claim to paying out a decade’s worth of dividends.
These stocks are usually found in the blue-chip category as such companies have a strong competitive edge and long track record.
A great example is Singapore Technologies Engineering (SGX: S63), or STE for short.
The engineering giant has been a consistent payer of dividends over the past decade and looks poised to continue doing well.
Let’s determine how much you would receive in dividends had you invested S$10,000 in the group a decade ago on the last day of 2013.
Making a long-term investment
If you had invested S$10,000 in STE back in 2013, you would have bought around 2,500 shares of the blue-chip group.
Shares of the engineering firm were trading at S$3.96 on 31 December 2013.
Let’s assume that you hold on to these shares for the next 10 years.
Today, STE is trading at S$4.54, which would have net you a 16.7% capital gain.
While this may not sound impressive, let’s take a closer look at what the group would have given you in terms of dividends.
Rising profits and dividends
STE reported a strong set of results for its 2023 along with an encouraging set of financial numbers for first half of fiscal 2024 (1H 2024).
Revenue for 2023 rose 10% year on year to S$10.1 billion while operating profit jumped 24% year on year to S$915 million.
Net profit for the year improved by 10% year on year to S$586 million but this profit included one-off and exceptional items.
Excluding these items, STE’s core net profit would have climbed 24% year on year to S$610 million.
The business also generated a positive free cash flow of S$562.6 million for the year, reversing the negative free cash flow of S$293 million the year before.
For 1H 2024, the financial numbers were robust, too.
Revenue increased by 14% year on year to S$5.5 billion with net profit improving by 20% year on year to S$337 million.
Free cash flow generation stayed strong at S$523 million for the half year.
This free cash flow enabled STE to pay out reliable dividends over the past decade.
Between 2014 to 2021, the group paid out an annual dividend of S$0.15.
The annual dividend increased to S$0.16 for both 2022 and 2023.
In total, you would have received S$1.52 per share in dividends over 10 years.
Based on the 2,500 shares that you own, you would receive S$3,800 in dividends.
These dividends would have yielded a 38% gain over your original investment sum of S$10,000.
Together with the capital gain mentioned above, you would enjoy a 51.5% gain over a decade which translates to a total gain of 4.2% per year.
A burgeoning order book
There could be more to come from STE.
The group’s order book has been steadily increasing over the years, reflecting better business development efforts and prospects.
Back in 2014, STE’s order book stood at S$12.5 billion.
Fast forward to 2019, and the engineering company’s order book grew to S$15.3 billion.
Even more impressively, in 2021 during the pandemic, STE’s order book jumped further to S$19.3 billion.
By the end of 2023, STE’s order book came in at S$27.4 billion, 19% year-on-year growth over 2022’s S$23 billion and was 42% above 2021’s level.
For 1H 2024, STE’s order book hit S$27.9 billion, of which S$4.9 billion will be delivered for the rest of this year.
A sea change in corporate strategy
This steady growth in STE’s order book was no coincidence.
Back in 2016, when incumbent CEO Vincent Chong took over, he initiated “Project Columbus” to help spearhead the group’s new growth strategy.
This strategy involved sharpening STE’s capital allocation, streamlining its portfolio, and acquiring new businesses to reignite growth and increase the group’s technological capabilities.
Through this process, STE exited 16 different, non-core businesses.
The group acquired engine nacelle manufacturer MRAS in 2019 for US$630 million and also purchased TransCore in 2022 for US$2.68 billion.
TransCore helped the group to acquire new capabilities in urban solutions and smart mobility.
At the same time, STE also refreshed its 2022-2026 targets and Chong is targeting S$11 billion of revenue by 2026.
Assuming the business maintains the same discipline in expense control, investors should see STE’s profits and cash flow rise in tandem.
Get Smart: A bright outlook
Prospects look bright for STE as it embarks on its ambitious five-year plan.
Backed by Temasek, which owns half of the group, the engineering firm’s share price recently hit an all-time high of S$4.81.
Granted, STE’s success will hinge on execution and consistency in delivering on its targets
But armed with Vincent Chong’s long-term vision, investors can expect the group to continue delivering consistent dividends.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
