M1’s Releasing More Innovative Products – Can These Sustain The Company’s Dividends?

Singapore’s smallest telecommunications service provider M1 Ltd (SGX: B2F) has recently seemed eager to come up with new innovative products to grow its business. Back in July, the company had launched a mobile payment terminal service targeting enterprise customers.

Now, it seems the company has set its eyes on travelers. M1 Ltd is now offering its customers with unlimited in-flight data roaming on 18 airlines, including Singapore’s flagship Singapore Airlines Ltd (SGX: C6L).

Customers of M1 can easily sign up for the service through their phones while they are travelling. Users would be charged S$0.20 per 10KB of data consumed but charges will be capped at S$25 per day.

Similar to trends seen at other telecommunications companies, M1 is experiencing more mobile data usage from its customers. In the first nine months of 2015, the company saw mobile data contribute 44.7% of its service revenue. That is up from just 34.5% a year ago.

Currently, M1 is focusing on more value-added products that are aimed at the trend of rising data-usage. Its mySIM postpaid plans target users with heavier data needs, giving them access to much larger data plans at a lower price range. The company is also expanding its corporate solutions, the XGPON connectivity services, with speeds upwards of 10Gbps, in the hopes of attracting more corporate customers.

M1 expects to spend around S$120 million on capital expenditures for the whole of 2015. So far in the year, M1 has generated S$208 million in cash flow from operations. From 2011 to 2014, the company had averaged around S$280 million in annual cash flow from operations, giving rise to an annual average free cash flow of S$160 million or so.

The free cash flow number is slightly higher than the average of S$130 million in cash that M1 has paid in dividends in each year from 2011 to 2014.

If M1 is able to keep up its ability to generate cash flow from its business, the company seems to be able to sustain its payout. M1 might even have the ability to raise its dividend in the future as its interest coverage ratio (EBIT/Interest cost) is at 48, which is a very strong figure, signaling the company’s ability to service its borrowings with little trouble.

All these seem like great news for shareholders of M1 which include Keppel Telecommunications & Transportation Ltd (SGX: K11) and Axiata Group Bhd (KLSE:6888.KL). Currently, M1 has a dividend yield of 6.9%.

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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 Stanley Lim does not own any companies mentioned above.