A plunge in its share price since mid 2017...that it never recovered from.
An increasing pressure from revolutionary competitors like Uber and Grab.
Does ComfortDelGro [SGX:C52] still have a place in the market?
With a mouth watering 5% dividend yield, does ComfortDelGro (CDG) still deserve a place in investors' portfolios with all the issues it is facing now?
We analysed ComfortDelGro's financial numbers using our Dividend Investing strategy in today's article to find out, let's jump right in:
A Summary of What Other Investors Think
Forever Financial Freedom (Positive)
- Brian has been tracking ComfortDelGro closely and he shares his views periodically.
- 3Fs has a sizeable stake in this counter, putting his money where his mouth is.
SG Young Investment (Positive)
- He has given a good breakdown of ComfortDelGro's business segments.
- He thinks the stock is cheaper than counterparts like MTR in Hong Kong and even the delisting offer of SMRT. He feels that it is still quite an attractive valuation for a global transport company.
- SGYI has also invested in ComfortDelGro.
InvestmentMoats (Slightly Negative)
- He has written the most comprehensive analysis on ComfortDelGro.
- He had an update on the discounted cash flow valuation which is lower than the current price.
- InvestmentMoats has also invested in ComfortDelGro.
So, we have a few experienced investors with differing views.
This is what made investing particularly hard - we all have our own perceptions of reality. No one truly knows what's true.
If it is not confusing already, here's what Dr Wealth thinks about ComfortDelGro:
Dividend Investing: The GPAD Strategy
I'm using Dr Wealth's GPAD strategy to determine if ComfortDelGro is a viable dividend stock.
In a nutshell, this strategy can be executed in just 3 simple steps:
- Determine the Gross Profitability
- Determine Dividend Payout Ratio
- Determine the Free Cash Flow
You can read more about the strategy at our Factor-Based Investing Guide, let's jump into the stock analysis now!
Step 1: What is ComfortDelGro's Gross Profitability?
To calculate this, we need the Gross Profits from the Income Statement to be divided by Total Assets from the Balance Sheet. If you are hardworking enough to examine the annual report of ComfortDelGro, you would notice that the Company does not calculate their gross profits nor the cost of sales incurred.
This is the downside of using gross profits in an investment metric because not all companies report it.
Not all hope is lost. We can rely on financial data providers who would have calculated the gross profits for all companies.
For this case study, I used financial data supplied by FactSet to crunch our numbers.
- The gross income from FactSet was $925.5m.
- The total assets as $5,122m.
- The GPA (Gross Profits / Total Assets) would range from 18% to 24%.
We have ranked all the SGX-listed stocks by their GPA and ComfortDelGro falls between the G5 (top 20% by GPA) or G4 (next 20% by GPA).
Our rules stated that we should only invest in G5 stocks.
Given this borderline situation, it is better to err on the side of conservativeness and not invest in it.
The result based on Gross Profitability alone has rendered the rest of the calculations meaningless, but I would still go through the exercise to illustrate the process.
ComfortDelGro's Gross Profitability:
18% to 24%
How To Deal With Inconsistent Data in Investing
Before we move on to the next part of the calculations, here's a quick headsup.
I found that the gross profits were different when I done some cross-checks with S&P Capital IQ and Thomson Reuters numbers:
S&P Capital IQ and Thomson Reuters have the closest numbers while FactSet was the most conservative.
You might prefer unanimous data but sometimes life isn't precise and throw you a range. It is still usable nonetheless.
I'd prefer to use the most conservative numbers during a stock analysis.
Step 2: What is ComfortDelGro's Payout Ratio?
To determine the payout ratio, we'll first need to calculate CDG's dividend yield.
Let's get onto it:
What is ComfortDelGro's Dividend Yield?
ComfortDelGro distributed $0.103 dividend per share in FY2016. Given a share price of $2.08, the dividend yield would be around 5%.
This yield would have put ComfortDelGro in the top 20% by dividend yield among SGX-listed stocks.
That is definitely an attractive yield for a blue chip stock, which is also the main reason that got investors excited.
Why You Should Not Be Tempted By ComfortDelGro's Dividend Yield Yet...
The #1 question that dividend investors are debating about is the sustainability of CDG's dividend.
With Uber and Grab competing for the share of the ride hailing business, will CDG be able to keep up with its payouts?
Although the taxi segment has been a major contributor to the Company, many investors havealso pointed out that ComfortDelGro is a way more diversified business with buses and trains businesses globally.
What is ComfortDelGro's Payout Ratio?
The Company's payout ratio is around 0.7 or 70% (Derived by taking 0.103/0.1468).
ComfortDelGro has a dividend policy of paying out at least 50% of its earnings as dividends.
As the Company has growth plans in numerous countries, it makes sense for it to retain some earnings to fund the projects and investments.
ComfortDelGro's Payout Ratio:
Step 3: What is ComfortDelGro's Free Cash Flow?
Free cash flow is a dividend investor's best friend.
It is often use to determine the amount of cash generated by the company after spending on equipment and other operational assets.
The more free cash flow means the company has the ability to pay more dividends.
I took the average of CGD's past 5 years free cash flow to smooth out the variation.
I'll spare you the detailed calculation, we've got an average free cash flow yield of 3%.
This isn't a pretty number especially it is below the dividend yield of 5%.
A low persistent free cash flow yield would imply future dividends could be reduced.
ComfortDelGro's Free Cash Flow:
So, Can You Invest In ComfortDelGro?
Many bloggers have shared their views on ComfortDelGro and we have given our unique quantitative evaluation.
The main reason we are not vested is because it didn't pass the gross profitability metric - we do not know if it is G5 or G4. Even if it is G5, it would be a borderline case with insufficient margin of safety.
Moreover the free cash flow yield isn't comforting either. So nay.
What Makes Investing Difficult...and what you can do about it
As you would have noticed in this article, there are uncertainties when it comes to investing.
- We all have our own perceptions of reality. No one truly knows what's true.
In the first section, I summarised what some of the investing bloggers said about ComfortDelGro. Although they are all invested in it, their reasoning to do so is different. Heck, even their sentiments for CDG's current situation may vary.
- Inconsistent reporting (and data)
For CDG alone, I was given 3 different 'gross profit' figures from 3 sources. We tend to like consistency, and this differences can throw many investors off their analysis.
- Reduce uncertainty with a structured investing system
I've got to admit. It's easier for us to look at companies objectively, and look ahead of inconsistent data only because we have a structured way of analysing companies.
We hold regular introductory courses to share our structured investing system called the "Factor-Based Investing". You can get a free ticket here.
CEO of Dr Wealth. Built a business to empower DIY investors to make better investments. A believer of the Factor-based Investing approach and runs a Multi-Factor Portfolio that taps on the Value, Size, and Profitability Factors. Conducts the flagship Intelligent Investor Immersive program under Dr Wealth. An author of Secrets of Singapore Trading Gurus and Singapore Permanent Portfolio. Featured on various media such as MoneyFM 89.3, Kiss92, Straits Times and Lianhe Zaobao. Given talks at events organised by SGX, DBS, CPF and many others.