With a market capitalisation of nearly S$6 billion, StarHub Ltd (SGX: CC3) is a pretty big company in Singapore?s stock market. But that?s not the only sizeable thing about StarHub ? its dividend yield is too.
At its current price of S$3.52, the well-known telecommunications company has a tasty yield of 5.7% thanks to its annual dividend of S$0.20 per share in 2014. By way of comparison, the SPDR STI ETF (SGX: ES3) ? an exchange-traded fund tracking the fundamentals of the Straits Times Index (SGX: CC3) ? has a yield of ?only? around 3.4% at the moment.
Let?s take a…
With a market capitalisation of nearly S$6 billion, StarHub Ltd (SGX: CC3) is a pretty big company in Singapore’s stock market. But that’s not the only sizeable thing about StarHub – its dividend yield is too.
At its current price of S$3.52, the well-known telecommunications company has a tasty yield of 5.7% thanks to its annual dividend of S$0.20 per share in 2014. By way of comparison, the SPDR STI ETF (SGX: ES3) – an exchange-traded fund tracking the fundamentals of the Straits Times Index (SGX: CC3) – has a yield of ‘only’ around 3.4% at the moment.
Let’s take a look at two charts which can give us more insight into StarHub’s dividend.
The first chart plots StarHub’s annual dividends since 2005, the first year it had dished out a dividend since its listing in 2004:
Source: S&P Capital IQ
There are not many companies around like Starhub with a clockwork-like consistency in its dividends over the past five years from 2010 to 2014. So, that’s an important takeaway from the chart.
StarHub has the intention to pay out a dividend of S$0.20 per share for the whole of 2015, unchanged from 2014. With its past track record – and the fact that it has already paid out S$0.10 per share in dividends for the first-half of 2015 – it wouldn’t be unreasonable for investors to have confidence in StarHub’s ability to hit that target.
But, the picture for the longer term is murkier. The second chart – which illustrates StarHub’s payout ratios (dividends as a percentage of earnings as well as dividends as a percentage of free cash flow) – shows us why that’s so:
Source: S&P Capital IQ
Payout ratios can give us a taste of a company’s margin of safety when it comes to sustaining or growing its dividends in the years ahead. In general, lower ratios would correspond to a thicker margin of safety.
Unfortunately, low payout ratios are not something which can be associated with StarHub. As you can tell, the telco’s payout ratios have been near or way higher than the 80% mark since 2008. In 2014, StarHub’s dividend was 93% of its profit and 104% of its free cash flow. The telco has very little room for error when it comes to protecting its future dividends.
In sum, Starhub has a solid track record when it comes to paying a dividend and that’s something to like. But, investors would have to be aware of the risks involved should there be any unexpected downturn in the telco’s business.
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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.