Keppel's 5.7% Dividend Yield: A High-Payout Opportunity With Hidden Risks

Singapore-based infrastructure giant Keppel Corporation (SGX:BN4) is set to distribute a SGD0.19 per-share dividend on May 9, 2025, marking the first installment of its semi-annual dividend schedule for the year. With an annualized yield of 5.7%, the payout offers investors a compelling income play. But beneath the surface, questions linger about whether this high yield is sustainable in the face of uneven free cash flow and a history of dividend cuts.

The Dividend Details
To qualify for the May 9 payment, investors must own shares by the close of trading on April 28, 2025 (ex-dividend date). The record date is April 29, 2025. This SGD0.19 dividend is part of an annual total of SGD0.34 per share, split into two installments. Historically, the second payment often follows in August, though the 2025 schedule remains unconfirmed.

The dividend yield, calculated at 5.7%, is particularly attractive in a low-interest-rate environment. However, this figure is contingent on the stock price holding near its current level.

The Appeal of the Yield
Keppel’s dividend yield has consistently outperformed peers in the Singapore industrial sector. For income-focused investors, the 5.7% payout—nearly double the 10-year government bond yield—offers a meaningful return. The company’s track record of semi-annual dividends also provides stability, albeit with caveats.

The Sustainability Question
While the dividend appears covered by near-term earnings—projected to surge 43.5% in 2025, reducing the payout ratio to a sustainable 50%—long-term risks persist. Historical data reveals a 2.1% annual decline in dividends since 2015, with the total annual payout dropping from SGD0.42 to SGD0.34.

The bigger issue is free cash flow (FCF). Despite earnings growth, Keppel has struggled to generate positive FCF consistently, relying instead on asset sales to fund payouts. This dependency raises red flags. As one analyst noted, “A dividend fueled by asset sales isn’t a sustainable model for long-term income investors.”

Key Metrics to Watch
- Payout Ratio: Currently 74%, but set to drop to 50% if earnings hit forecasts.
- Dividend Sustainability Score: 65.58% (low), per third-party analysis.
- Free Cash Flow: Negative in recent years, though the company aims to improve this through its energy transition projects.

The dividend’s 74% coverage by earnings offers a near-term buffer, but FCF remains a weak link. Meanwhile, the stock price is expected to drop by ~2.86% on the ex-dividend date (April 28), reflecting the removal of dividend entitlement.

The Bottom Line: A Compelling, but Not Perfect, Income Play
Keppel’s 5.7% dividend yield is a strong income generator for those willing to accept moderate risk. The 2025 earnings growth projections and semi-annual payments provide immediate upside. However, investors must weigh this against structural issues:

1. Free Cash Flow Concerns: Asset sales have propped up dividends, which may not be repeatable.
2. Historical Declines: Dividends have trended downward since 2015, suggesting caution for long-term holders.
3. Market Sentiment: The ex-dividend date price drop (as seen in past years) could pressure short-term returns.

In conclusion, Keppel’s dividend offers a high-reward, high-risk trade. The May 9 payout is safe, with the SGD0.19 amount already confirmed. For income investors with a 1–2 year horizon, it’s a viable play, especially if the stock price dips post-ex-date. But those seeking long-term dividend growth should proceed with caution, as sustainability hinges on FCF improvements and strategic execution in energy transition—a critical test for the company’s future.