Invest in SATS for a 20% upside and dividend restoration?

For readers who who are not subscribed to my YouTube channel or who simply prefer reading blogs to watching videos, this is the transcript of another recent video I produced.
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I invested in SATS donkey years ago in 2014 at under $3 a share.

Back then, I said the following.

SATS' PE ratio was under 19 times.

Although SATS paid more dividend per share or DPS than its earnings per share or EPS, a more normalized payout ratio was 70% of earnings.

So, I believed that an annual DPS of 11 cents was realistic.

Based on $3 a share, that would have translated to a dividend yield of 3.67%.

Compared to the risk-free rate we can get today with T-bills, it would not be that attractive today.

However, in an environment of very low interest rates, that would have been a pretty decent dividend yield from a solid and predictable business model.

Especially when there was an element of growth, no matter how small, thrown in.



Of course, the COVID-19 pandemic changed things.

To be fair, it changed things for many businesses and not just SATS.

SATS suspended dividends.

Just when things were looking up post pandemic, they decided to buy WFS for more than $1 billion.

I likened the deal to a snake swallowing an elephant.

When an unlikely opportunity presented itself in February this year, I sold my investment in SATS, netting a gain in the process.

In the blog I published in February, I said this.

"I really didn't want to have to bother with the proposed rights issue especially when I used my SRS money to invest in SATS.

"That was many years ago, but long-time regular readers might remember my blogs on SRS money, and how I would use them to generate higher returns.

"I was careful to invest my SRS money only in endowment policies and businesses which I thought would never have to do equity fund raising by issuing rights.

"This matter of acquisition and fund raising has been going on for so long and I am glad to be rid of it."



The money I got from the sale probably went to increasing my investment in OCBC when its share price dipped below $12 later on.

Anyway, when a reader asked if she should take part in the rights issue as she was holding on to the investment, I talked to myself as usual.

I really could not see SATS paying a dividend again for a while, and I could not tell how well the integration would go.

I would be wary of throwing good money after the bad.

It was not as if SATS was paying a meaningful dividend to reward shareholders for their patience and further monetary support.

I know many analysts are waving "BUY" flags with target prices of above $3 a share for SATS.

Target price of $3.25 a share is the average.

If they are right, long-time investors in SATS like me could see good results too without taking part in the rights issue.

Just have to wait and see.



In the latest report, SATS reported a net loss of more than $26 million.

This compared to the net profit of more than $20 million last year.

At $2.75 a share, it seems that the forward PE ratio for SATS is 25 times.

Of course, we should remember that forward PE is different from trailing 12 months PE since it is forward looking and an estimate by analysts.

I remind myself that SATS is still not paying a dividend.

I also remind myself that when I invested in SATS in 2014, it was paying a dividend.

At the time in 2014, its PE ratio was under 19 times.



So, would you like to make a guess as to when I might invest in SATS again?

Everything else being equal, right now, it has to be around $2.10 a share.

This is even lower than what existing shareholders had to pay during the rather recent rights issue.

On hindsight, that would have been another reason not to be overly optimistic about the acquisition of WFS.

Of course, for me to invest in SATS, it should be paying a meaningful dividend too especially when I do not think it is undervalued today.

If AK can talk to himself, so can you! 

Related post: 
Changes to portfolio (Feb '23.)