ComfortDelGro shares now trade at 5.5% dividend yield – good. If profits keep growing, I’m not surprised it could potentially hit 7% yield.
That said, I want to share an important observation with you.
~At S$3 billion market cap, ComfortDelGro is a transport monopoly in Singapore. It controls ~65% of the taxi market here.
Today, it’s also one of the biggest transport players in the world – with operations across Australia, UK and Europe. It operates rails, taxis and public buses.
Click here to read: Was I Wrong About SATs Ltd (S58.SI) Dividends?
ComfortDelgro has been firing on all cylinders. It reported strong 1Q2025 financial results, Revenues grew 16% y/y and net profits rose ~19% y/y.
This was driven by better profit margins from its UK bus contracts, higher ridership and fare increases after the annual review by the Public Transport Council.
What’s more, its Seletar bus package will start operating this year and has already been renewed for another five years. Not too bad.
ComfortDelGro’s overseas segment >50% of total revenues
That’s impressive, especially for a Singapore company.
Put it this way, most local firms struggle to expand overseas. And ComfortDelGro has done it.
I’ve no doubt ComfortDelGro is a good dividend payer.
However, the more I poured into its annual reports, I observed something had changed.
Before COVID, ComfortDelGro was producing ~S$4 billion of revenues, averaged ~S$350 million in net profits, and maintained a healthy ~7% net margin.
This is rock-solid for a capital-intensive, transport business.
Today, its revenues have recovered to pre-COVID levels. Yet it isn’t producing the net margins it deserves. Why?
The thing is, ComfortDelGro has been actively expanding overseas – winning new transport contracts.
For instance, it won the Stockholm Metro contract that will start in 2025 for 11 years. This is ComfortDelGro’s largest rail operation outside Singapore and their first in Scandinavia.
It has been scoring big wins in new contracts. But here’s the tricky part.
To run these contracts, ComfortDelGro has to spend much more money to run these contracts – or what you call Contract Services.
Contract Services include:
- Third-party maintenance
- Repairs
- Vehicle upkeep
- Subcontract drivers
- Fleet refueling
And so on.
It’s costs that directly support ComfortDelGro’s contracts. And a large part of its operating costs have gone up because of higher Contract Services.
In 2019, ComfortDelGro’s Contract Services stood at S$171 million, which is only ~4% of total revenues…
Today, they have ballooned to S$417 million, that’s ~9% of total revenues…
This is more than doubled compared to its pre-pandemic operating costs.
This spike in contract services suggests increased outsourcing or expansion in external partnerships.
In 2024, Contract Services were one of the fastest growing costs.
Most of these Contract Service costs come from Public Transport…
Credit: ComfortDelGro’s Annual Report 2024
I don’t like to say this… While revenues have recovered, higher operating costs are eating into ComfortDelGro’s margins.
It doesn’t look huge. But for a company that pays ~60-70% of its net profits as dividends, this operating cost increase becomes critical.
Last year, ComfortDelGro hit a record S$4.4 billion in revenues, but had made much lower S$254 million net profits compared to 2019.
That’s a 4.7% net margin – below the 7% average before the pandemic. The company is growing. But it’s also less efficient.
Of course, this isn’t always bad.
Expanding into new markets takes time. Margins can recover but it could limit how fast its dividends could grow.
The GrabCab Threat
A quick one on competition.
Earlier this year, Grab obtained a taxi operator license by LTA, making it the sixth taxi operator in Singapore, called GrabCab.
The good news is, there’s still a shortage of taxi drivers in Singapore.
Grab may want to scale its ride hailing business. But it’s not easy to start a taxi fleet from scratch.
So far, Grab hasn’t revealed much about its new segment – targeted taxi size, when to launch, and so on. And it will take time for GrabCab to meaningfully grow its fleet to compete with CDG.
Future growth vs growing dividends
ComfortDelGro has a war chest of S$900 million in cash to be readily deployed into new markets. Its new contract wins have helped to grow its business aggressively. The big question mark is whether it can control costs, and grow its net margins.
As a dividend investor, high-quality earnings determine the growing dividends you get.
My final thoughts
Since COVID, ComfortDelGro’s dividends have rebounded strongly – rising from S$0.01/share in 2020 to S$0.08/share in 2024.
At current prices, this is a ~5.5% dividend yield.
Like I’ve said, I won’t be surprised if it could grow to a 7% dividend yield if you bought shares today.
Like I’ve also said, ComfortDelGro’s business has changed.
And fast expansion into new markets takes time. While revenues have hit new peaks, margins will need time to recover.
Dividend growth depend on how sustainable its margins are.
I expect revenues to grow more aggressively from here. But ComfortDelGro has also become more capital intensive, as it struggles to grow its profit margins.
At 5.5% dividend yield, it makes a consistent dividend payer.
What I’d pay close attention to is the ability to control its costs. Since it pays much of its profits as dividends, it has to be able to grow profits and better sustainable margins to hit a potential 7% dividend yield.
Sometimes, investing can be simple.
Willie Keng, CFA
Founder, Dividend Titan
