I’m sure you’ll recognize this pattern: Great companies, like ComfortDelGro, report huge fall in quarterly earnings, its shares collapse, dividend yield goes up, value investors pick it up at a cheap price.
Then, wait for the share price to rebound as ComfortDelGro produces better results, all these while collecting the company’s dividends.
But not all falling knives work this way all the time.
ComfortDelGro Corporation (SGX:C52) is one of the biggest transport companies in the world, and one of Singapore’s last generation businesses.
It was formed initially to remove the problem of “Ali-baba” or pirate taxis which were rampant in Singapore during the 1970s.
Today, it dominates Singapore’s public transport services, with its SBS Transit’s bus and rail, Comfort and CityCab taxis.
Its profitable operations extend beyond to the UK, Australia and Vietnam, which helped reward ComfortDelGro’s shareholders with growing dividends since 2003.
From a numbers perspective, the stock looks attractive today.
It’s down 47% since 2015 to S$1.60 per share today.
This is despite ComfortDelGro’s sales averaged a solid S$3.7 billion and the company generates steady, positive free cash flow.
Which means, as a long term dividend investor, this stock is cheap enough to buy.
Source: Yahoo! Finance
Now, what’s not so clear at this point is the changes in transport dynamics.
I’ll explain. My concern is ComfortDelGro’s failing taxi business.
Over the past six years, taxi sales were terrible.
ComfortDelGro’s taxi sales halved from S$941 million in 2015 to S$403 million in 2020. Don’t forget, taxi sales still contribute around 15% of the company’s sales.
What’s even worse is the Covid-19 pandemic made the whole business harder to survive.
During its latest financial year Dec 2020, ComfortDelGro’s total sales fell hard by 17%, to S$3.2 billion.
And its taxi sales dropped by 39% to S$403 million.
I was on the yellow Comfort taxi with my family for our yearly Lunar New Year house visit. And the first thing the taxi driver said to me, straight after I buckled my seat belt was this — “This year better, but still very quiet leh…”
Even then, many taxi drivers only want to do day shifts, since the night ones have much lesser traffic because of early shop closures and “work-from-home” policies.
What’s tougher was the increasing competition from technology-focused companies like Grab (and Uber for awhile before it shut down).
These technology companies make it efficient for passengers to hail private cars, and are very price competitive, compared to ComfortDelgro.
That’s why ComfortDelgro’s operating margins have dropped massively from 11% in 2011 to 5.7% in 2020.
Can I Still Collect Dividends From ComfortDelgro?
The bright spot remains in ComfortDelgro’s SBS Transit bus and rail segments.
SBS Transit is a solid business that continues to grow year after year. In fact, I think it’s a key business which will help to pay out dividends, if any, in the future.
Since 2003, ComfortDelgro has rewarded shareholders with growing dividends — paying 4.21 cents per share in 2003 to 10.5 cents per share in 2018.
But here’s the thing. In 2019, ComfortDelGro cut its dividends for the first time to 9.79 cents per share. And I think there’s trouble for dividend investors.
Even if the bus and rail do well, in my opinion, ComfortDelgro still needs to at least maintain its steady taxi business. But the intense competition coming from Grab is making this hard for Singapore’s largest transport business.
During the company’s latest financial results in Dec 2020, ComfortDelGro has decided not to even pay a mid-year dividend for the first time in history.
Even the Chairman, My Lim Jit Poh has said “it’s (the company) taking an in-depth analysis of our business and operations…”
I’ve been an analyst more than 10 years. And every time management wants to look deep into the company, something bad is going to happen, or has already happened.
Why I’m Even Concerned About ComfortDelgro’s 2% Dividend Yield
For me, I don’t expect dividends to grow like last time.
And I think ComfortDelGro’s shares are just going to fall further.
Will ComfortDelGro adapt? It’s hard to imagine at this point the company will be able to succeed.
What’s happening to ComfortDelGro right now, is it’s smack in the middle of a changing industry.
With new technology-focused companies like Grab aggressively taking market share — improving payment systems, making more efficient for passengers to get taxi, ComfortDelGro is in a tough spot to catch up.
Plus, with the persistent Covid-19 pandemic, I’m not surprised if ComfortDelGro’s taxi business continues to worsen.
Don’t get me wrong, I like ComfortDelGro’s dominance in transport, but I also pay attention to shifts in the industry.
At some point, I believe the company and its dividends will improve, but not anytime soon.
Suddenly, this stock doesn’t look cheap anymore… does it?
To good investing,
Willie Keng, CFA
Founder, Dividend Titan
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