Best Buy: CapitaLand Investment vs. CDL

Singapore property dividends

Tim Phillips

September 13, 2022

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Interest rates are rising. Inflation is soaring. Stock markets are falling. Amid all this, surprisingly perhaps, property prices in Singapore are skyrocketing.

Typically, that should be good news for property stocks in Singapore. Two of the biggest in Singapore are CapitaLand Investment Limited (SGX: 9CI) and City Developments Limited (SGX: C09).

The former had turned itself into a listed holding company for its fund management and lodging businesses (as well as REITs).

Meanwhile, its property development arm was hived off as a separate private entity. It reported some solid first-half 2022 results in August.

City Developments, also known as CDL, has remained the same and appears more exposed to the upside of a surge in residential property prices.

So, out of CapitaLand Investment and CDL, which is the best buy for long-term investors? Let’s find out.

Dividend growth

For a lot of Singapore investors over the years, property companies have been reliable dividend payers. But have they been consistent in dividend payments over the long term?

More importantly, have the two grown dividends over longer timeframes? That’s more of a debatable issue.

In FY2011, the former CapitaLand Ltd paid out a total dividend per share (DPS) of 8 Singapore cents. In FY2021, CapitaLand Investment paid out a DPS of 15 Singapore cents.

That equates to a compound annual growth rate (CAGR) of 6.5% for CapitaLand Investment’s dividend over the past decade.

So, what about CDL? For 2011, the pure-play developer paid out a DPS of 18 Singapore cents. In 2021, CDL paid out a total DPS of 12 Singapore cents.

That’s a negative -4.0% CAGR in dividend growth over the past decade. Admittedly, there was a “pandemic” effect but CDL also had a lower dividend in between 2012-2016.

Winner: CapitaLand Investment

Business model and liquidity

With regards to the business model, sustainability is a key factor for any investors – particularly when it comes to dividends.

So, for traditional property players, there’s an inherent issue with their model. That’s one of the main reasons that CapitaLand Ltd transformed into CapitaLand Investment.

On that front, CDL’s latest H1 2022 earnings illustrate this point. Traditional property companies rely heavily on one-off transactions and sales to generate bottom-line profit.

As the table below shows, CDL had great profit metrics at first glance for the first half of this year.

That is, until investors realise that without one-off gains from a hotel sale in Korea and gains from a related transaction for CDLHT, it would have been a lot lower.

CDL H1 2022 revenue profit

Source: City Developments H1 2022 earnings presentation

In other words, while it looks good it’s not sustainable. That’s because it leads to lumpy revenue visibility and the inability to accurately predict cash flows and, thus, dividends.

Meanwhile, CapitaLand Investment is shifting its business model away from one-off windfalls and towards a recurring-fee business.

This segment – named “fee-related business” (FRB) – allows CapitaLand to better predict the landscape for growth going forward.

CapitaLand operating PATMI H1 2022

Source: CapitaLand Investment H1 2022 earnings presentation

It also gives the business the requisite capital to redeploy into higher-earnings opportunities across the Group.

Finally, liquidity and capital are ever more important in an environment as uncertain as we find ourselves in.

Here, CapitaLand Investment is bigger and therefore has more capital available to it. As of 30 June 2022, CapitaLand Investment had S$7.4 billion in cash and undrawn facilities versus S$4.1 billion for CDL.

Winner: CapitaLand Investment

One-year and year-to-date performance

Finally, the argument was made by CapitaLand that turning itself into a holding company would unlock shareholder value.

How well has that played out? Over the past year CapitaLand Investment shares are up nearly 27% versus the 21% increase for CDL.

However, year-to-date in 2022 CDL shares have risen by 24.3% versus the 7.5% rise for CapitaLand Investment’s stock.

The majority of the gains for CapitaLand Investment shareholders came right after it listed as a new company.

It’s a draw

Think about the long-term returns

As investors, we should consider buying and holding businesses for the long term. One of the key questions we should ask is whether the businesses we own are sustainable?

For me, the winner out of this battle has to be CapitaLand Investment. That’s purely down to the fact that its business model is more aligned with long-term success.

Giving shareholders better visibility on revenue and income streams, it’s less reliant on the residential property market and the vagaries that it brings.

While CDL could see better short-term performance on improved sentiment, this can always turn very quickly.

As all of us are aware, past government restrictions on residential property purchases in Singapore tend to have an adverse impact on developers’ share prices.

By taking that out of the equation, CapitaLand Investment has built a more resilient business for its investors.

Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares of any companies mentioned.

About the Author: Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth. He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer. In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.