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Would Bigger Dividends Be On The Calling Cards For SingTel Soon?

With some 3.96 million mobile customers in Singapore at the last count, telecommunication services provider Singapore Telecommunications (SGX: Z74) should be a familiar company for most residents here.

Besides that, the company’s also likely to be well known amongst yield-hungry investors given its trailing yield of 4.5%, at its current price of S$3.70. Its high yield has partly been an artefact of the company’s generosity over the years in sharing its profits with shareholders in the form of dividends.

SingTel’s dividends

Prior to its financial year ended 31 March 2013 (FY2013), the company had a dividend policy of paying anywhere between 55% and 70% of its profits as dividends. In that particular financial year, SingTel tweaked its dividend policy and became even more generous – its pay-out ratio (the percentage of profits paid out as dividends) was bumped up to between 60% and 75%.

The company’s willingness to share the spoils with shareholders has also led to steadily increasing dividends over its last six completed financial years.

Financial year ended 31 March

Total dividends per share

2008

S$0.125

2009

S$0.125

2010

S$0.142

2011

S$0.258

2012

S$0.158

2013

S$0.168

Source: S&P Capital IQ

With the company last reporting its third-quarter financials on 13 Feb 2014, it’s likely that it would be handing in its financial report card for the year ended 31 March 2014 over the next few weeks. As a stalwart amongst dividend shares in Singapore, it’s perhaps natural to ask, would it be able to grow its annual dividend when it eventually announces its results?

SingTel’s pay-out ratio for FY2013 was at 74%. That’s essentially at the upper-limit of its dividend policy, which means that there’s little wriggle room for the company to showcase larger annual dividends for FY2014 unless its profits can improve.

And on that front, there could be cause for some caution for investors who are banking on a bigger annual pay-out from SingTel. In the company’s latest earnings release for the third quarter of FY2014, operating revenue for the nine month period had slipped by 7.1% year-on-year to S$12.7 billion. Meanwhile, its profits had gone up by 4.3% to S$2.75 billion. While the profit growth looks fine so far, SingTel did warn of a “mid single digit level” decline in its earnings before interest & taxes (EBIT), excluding associates’ contribution. As SingTel’s EBIT goes a long way in determining its final profits, any adverse changes to the financial metric can affect the company’s dividends.

SingTel’s future

Over the years, the company’s profit performance in Singapore has been waning due to fierce competition from local telco rivals Starhub (SGX: CC3) and M1 (SGX:B B2F). And while the company’s Australian telco operations – led by wholly-owned subsidiary Optus – have helped pick up the slack, there are signs that Optus is also facing huge pressure from the country’s number one telco, Telstra.

A company as big as SingTel – it has a market capitalisation of S$59.4 billion and makes up almost 10% of Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI) – won’t disappear overnight. But, that does not mean that investors shouldn’t be wary of competitive threats that the company’s facing. And from the looks of things, SingTel does have a fight on its hands.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn’t own shares in any companies mentioned.