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2 Charts About Singapore Technologies Engineering Ltd’s Dividends Investors Should Know

Source: Fool Editorial

In Singapore’s stock market, the term ‘blue chips’ is commonly used to refer to the 30 constituents of the market benchmark, the Straits Times Index (SGX: ^STI).

Currently, the index has a yield of 3.2%, if we’re using data from the SPDR STI ETF (SGX: ES3) as a proxy; the SPDR STI ETF is an exchange-traded fund which closely mimics the fundamentals of the Straits Times Index.

When it comes to blue chips with an attractive yield, engineering conglomerate Singapore Technologies Engineering Ltd (SGX: S63) may be considered as one. After all, at the company’s current price of S$3.22, it has a market-beating yield of 4.7% thanks to its annual dividend of S$0.15 per share in 2014.

But, it’s important to note here that having a high yield alone does not make a stock a good investment for dividends. Here are two charts which can give us some important investing insights about ST Engineering’s payouts.

The first chart plots the history of the engineering outfit’s dividends over the decade ended 2014:

Chart 1 - ST Engineering's total dividends (ordinary + special) per share

Source: S&P Capital IQ

One key takeaway from the chart is ST Engineering’s strong track record in having consistently paid a dividend in each fiscal year since 2004. This trait can give investors some confidence that the firm may be able to continue sharing the spoils with its shareholders in the years ahead.

But, the amount of the dividend is another story altogether. The second chart illustrates ST Engineering’s payout ratios over the same time frame as Chart 1:

Chart 2 - ST Engineering's payout ratios

Source: S&P Capital IQ (dividends here equate to total dividends in Chart 1)

Payout ratios (dividends as a percentage of earnings and dividends as a percentage of free cash flow) can be useful in giving us an idea of how much room for error a company has when it comes to maintaining or growing its dividend. With all things equal, low ratios are preferred over high ones.

Unfortunately, ST Engineering’s payout ratios are not low. In 2014, the engineering company’s dividends were at 88% of its earnings per share and 117% of its free cash flow per share. So while ST Engineering has a healthy dividend-history that’s likeable, investors would have to be aware of the risks involved given the company’s thin margin of safety regarding its ability to sustain or raise its payouts in the future.

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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.