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Is This Singapore Dividend Stock a Safe Investment?

Here's what you exactly need to know about this Singapore dividend stock. And whether its 5.2% dividend yield is safe?

There’s two things I must like about Singapore dividend stocks (including Singapore’s big landlords)

First, it must be a thriving yet ‘boring’ business.

Second, and more crucially, there must be growing revenues and profits.

Today, I’m going to see whether this Singapore dividend stock fits the bill.

Now, dental services isn’t an exciting business.

But it’s an incredibly important one.

No matter what’s going on in the economy, you need to get your teeth checked and cleaned.

Sometimes, even performing oral surgery.

In 1996, Dr. Ng Chin Siau sold his three-room Clementi flat for S$180,000. And bought over a small private clinic in Bukit Batok. 

That was how Q&M Dental Group (SGX:QC7) started.

Q&M stands for ‘quan-min’ which, in Chinese, means “the people”.

Dr. Ng has quietly built one of the biggest private dental healthcare chains in Singapore.

Today, this home-grown Singapore company has 119 dental clinics, including 34 in Malaysia and 1 in China. 

Its clinics bring in more than 1,300 visits per day in Singapore.

And these visits brought it S$137 million revenues and net profits of S$20 million last year.

 

I call this Singapore dividend stock a “roll-up” business

The thing is, Q&M built its network of clinics with a “growth-by-acquiring” strategy.

Let me explain.

A “growth-by-acquiring” strategy is when Q&M collects other dental clinics, in order to rapidly grow its business.

In 2014, Q&M bought many family-owned dental clinics. 

These include NG GK Dental Surgery, D&D Dental and AR Dental Supplies in Malaysia.

Then, it bought Aoxin Stomatology and Qinghuang Aidite High Technical Ceramic in China.

In 2015, it bought Tiong Bahru Dental Surgery, Bright Smile Dental Surgery, TP Dental Surgeons and Aesthetics Dental Surgery.

This helped cement Q&M Dental Group as one of the biggest dental healthcare business in Singapore.

As a result of these acquisitions, Q&M saw their revenues more than doubled from S$70 million in 2013 to S$155 million in 2016.

The benefit of using a “growth-by-acquiring” strategy is this — it allows Q&M to grow aggressively, as long they can continuously raise money to fund their acquisitions.

This strategy is not new, and was widely used in the US. 

They call it a “roll-up”.

By growing this way, Q&M can join up all the private dental practices in Singapore — creating a network chain under a common brand name.

You can say Q&M had no trouble growing fast then.

By the numbers, Q&M Dental Group’s benefited from its acquisitions.

The dental company’s net profit margins improved from 9.6% to 14.4% between 2011 and 2020.

Their return on equity (ROE) has averaged around 18% over the last 10 years.

And over the last five years, they have produced an average free cash flow of S$14 million — a healthy number for a S$600 million publicly-listed company.

Now free cash flow is one of my favourite metrics when looking at a company.

Because it tells me if a company produces enough cash flow to grow their business and reward shareholders with ample dividends.

 

What’s not so clear about this fast-growing dental business

Now, what’s not so clear is this.

Q&M stopped acquiring new clinics after 2016. 

And that resulted in a much slower growth over the recent years.

In fact, in 2017, they had to sell some of their loss-making clinics. 

Q&M suffered a revenue drop.

Later on, revenues grew modestly from S$120 million in 2018 to S$137 million in 2020. 

Because of their aggressive acquisitions in their earlier years, Q&M decided to focus on “organic growth” instead.

What this means is they try to increase sales in each of their dental clinics.

As Q&M shifts from a “grow-by-acquiring” to “organic growth” strategy, their revenues and earnings growth rate slowed.

Q&M has an excellent private dental business in Singapore.

It expanded aggressively and at one point, its shares peaked at S$0.94 per share in 2015, up from S$0.24 per share in 2009.

But as the company’s growth slowed, its share price fell. 

It hit a bottom of S$0.37 per share. 

Now, the stock has risen 108% since March 2020, during the peak of the COVID pandemic. 

And that’s probably because of the pent-up demand from everyone staying at home. 

Q&M’s dividend yield right now is at 5.2% — it paid 4.4 cents per share over the last 12 months.

Is this Singapore dividend stock safe to buy?

Here’s the thing.

Q&M has paid out dividends since 2009. 

But the amount is not consistent.

Some years, they pay out more.

Some years, they pay out less.

Source: Q&M Dental Group Company Website

That’s why their dividend pay out ratio bounces up and down — it ranges between 37% to 121%.

Dividend payout ratio is the amount of dividends you pay out from the earnings you make for that year.

You simply take dividends per share dividend by earnings per share.

Q&M Dental Group may have a “boring” business that many people don’t know about, and that usually makes for a good Singapore dividend stock.

But the thing is, this boring business growth isn’t that strong as it used to be.

And their dividends are not steady enough for me to put this in my portfolio.

Q&M is trying to pursue growth in other countries but that has remained to be seen.

Right now, this Singapore dividend stock isn’t that great, or safe. 

I still have much better opportunities elsewhere.

Sometimes, investing can be simple. 

Always here for you, 

Willie Keng, CFA

Founder, Dividend Titan

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Philip
Philip
1 year ago

Willie , a very objective analysis. Consistency in dividend payment is the key overriding selection . Keep it up. Tks

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