Is Venture Corp a Buy for Dividends at 5.9% Yield?

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Is Venture Corp a Buy for Dividends at 5.9% Yield?

williekeng

Publish date: Wed, 12 Feb 2025, 08:30 AM

Venture Corp has taken a beating. Over the last five years, shares fell 26% and now trades close to 6% dividend yield.

Thanks to semiconductor cycles and high interest rates over the last couple years, Venture is once again looking cheap.

Thus, are shares a buy today? Let's talk about it!

Venture Corp: A steady dividend grower

At S$3.6 billion market cap, Venture is an "under-the-radar", Singapore based electronics maker.

It was started in 1984, which eventually hit its first billion dollar revenue in 2000.

Not many investors may know about Venture. It's a quiet business. And makes a wide range of electronics products for other companies: from the latest tech equipment in printing and imaging products, to routers, barcode scanners, networking products.

These are the stuff that many Fortune 500 companies, including big telecom, semiconductor and consumer electronics products sell.

You could say Venture is an original equipment manufacturer, or OEM.

Previously, I wrote about Venture my 10 Best Singapore Dividend Stock Beginner’s Guide here:

"Now, an OEM is a company who makes equipment and devices that are used in another company's end products.

Over the years, the company has transformed from just servicing electronics companies to being able to serve the healthcare, instrumentation and other industries.

It works with its clients from the design stage, all the way to tooling and bringing their products to market."

The good news is you'll probably have long queue customers in today's technology revolution. More and more companies need low-cost, mass market types of electronic parts.

That's why Venture has a diversified base of customers across life sciences, materials technology, medical devices, networking & communications, industrial IOT and so on.

And it sells these products all over Asia.

The bad news is OEM companies are highly cyclical.

Even as an old kid on the OEM block, Venture is hit by the ebb and flow of electronics supply cycles.

Last year, management said lower revenues and net profits were due to "softer demand". There just aren't many companies ordering goods.

Following up to its latest 3Q2024 results, revenues and net profits were down 3.9% and 4.7% compared to the previous quarter, respectively.

As a result, shares have yet to recover to its previous high in 2018.

This is why reinvesting into the OEM business may not be as attractive, given intense competition from neighbouring countries with cheaper labour, and fast catching technology.

Over the past ten years, its ROE continues to drop as increasing capital into the business may not yield as strong returns as before.

Venture — 30 years of uninterrupted dividends

However, there’s some very interesting figures you may want to know.

You see, Venture has surprisingly been paying interrupted dividends for the last 30 years.

In Singapore, that record is impossible for most companies due to its short history as a nation. Yet, Venture has done that.

Since its listing in 1992, Venture has paid dividends every single year.

More impressively, in recent years, the company has been able to maintain or even raise its dividend over time. It pays an average 50 cents dividends per share each year.

Last year, it rewarded shareholders with a 75 cents per share dividend.

Going into the trough of an OEM semiconductor cycle may disrupt Venture's operations for some period. But it won't destroy the business.

Given its size and long-term reputation, I find it hard to imagine anything that will potentially threaten this company’s performance over the next decade.

On average, it produces more than S$3 billion in revenues each year and commands 9-10% net profit margins. Not too bad for an OEM player.

Venture sit on a huge cash pile, and no debt

What's crucial is these profits produce cash flow that allowed Venture to sit on a huge pile of cash over the years. Venture is careful in how it grows the business and doesn't put on leverage.

In other words, it's the kind of business that puts you to sleep soundly at night.

So it can safely pay all of its liabilities and more than enough to redeploy into the business.

At close to 6%, it's trading very close to its historical high dividend yield.

When I invest for dividends, knowing the right time to buy a stock is crucial. You can buy high-quality assets but still lose money, because of the entry price.

My Final Thoughts

Over the years, what's important to note is the dividend yield cycle theory.

High-quality stocks like Venture tend to fluctuate between extremes of high dividend yield and low dividend yield.

Such extremes repeat themselves over long periods of cycles. Venture doesn't have much analyst coverage, which makes shares even more volatile when it announces poor quarterly results .

Yet Venture is the kind of company to look into if you're interested in riding the huge technology wave. But wanting to avoid the largely unprofitable “growth” stocks.

Even though Venture Corp's growth may not be as strong, and may not be the best performing dividend stock, it provides a certain level of stability and safety to its dividends. This makes it a perfect fit for a dividend portfolio.

With is dividend yield trading closer to historical highs, it seems Venture is trading in a “like to dip your toes in the waters” price level today.

Sometimes, investing can be simple.

Willie Keng, CFA

Founder, Dividend Titan

The post Is Venture Corp a Buy for Dividends at 5.9% Yield? appeared first on Dividend Titan.

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