SBS-Transit

A fundamentally sound counter which gives >8% of dividend: SBS-Transit

It dropped from a high of $3.8 to $2.9+. Reason for drop is because of 3Q07 earnings dropped substantially as SBSTransit absorbed the 2% GST increase.

But from 1 Oct 07, the Public Transport Council approves a 1.8% bus fare "adjustment". So this will partially offset the impact of GST.

North East Line (NEL)
Reason for SBST hit a high of $3.8 is because of the turnaround of NEL. It is now quite a significant contribution to the bottomline. For those who use NEL line, you will noticed that its getting MORE and MORE crowded! a lot of new flats are being build at Buangkok area. More and more families (esp. young couples) are driven to Sengkang and even Punggol area because of the v high property prices. Therefore high probability that profits for NEL line will continue to go up.

More people may also take public transport with the increase in taxi fares and inflation.....

Rental Income
A point to note is that rental income for SBS transit is increasing as the redevelopments of bus interchanges (Toa Payoh, Sengkang and Ang Mo Kio) are bringing in income. There's further potential for this to increase. In a way, SBS-T is following SMRT in developing its premises to bring in more revenue.

Sustainability of dividends
This is mainly a dividend play stock (25-28.5 cents since 2004), therefore we need to be assured that dividends are to continue for years to come. Comfort Delgro owns 75% of SBST and is squeezing this cash cow for every cent possible to finance its overseas expansion... this is very evident whereby SBS-T paid 25 cents dividends in the last 3 years despite NEL bleeding badly.
Therefore SBS-T classify most of its dividend as "Special Dividend" (15 to 17cents) and this Special is usually paid out in 4Q-2007 together with final dividend.

But during this 3Q-2007, for the first time during this time of the year, a special dividend of 7 cents is declared.
This can mean 2 things, its either 7 cents is the ONLY Special dividend that is to be paid during the year, OR there's a shift of the bulk of Special dividends to FINAL dividend.
So there's 2 different perspective on the signalling effect of dividends. Its up to each to judge.

Dividend Yield
Assuming that dividend of 25 cents is given for the full year, at current price of 2.93, dividend yield is 8.5%.

How the capex will impact its valuation or its ability to pay dividends going forward ?