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3 Charts Investors Should See About SATS Ltd’s Dividend

SATS Ltd (SGX: S58) is one of the newer blue chips in Singapore’s stock market given that it joined the Straits Times Index (SGX: ^STI) less than a year ago in September 2015.

At the company’s current stock price of S$4.16, it has a decent yield of 3.4% thanks to its annual dividend of S$0.14 per share for its fiscal year ended 31 March 2015 (fiscal 2015).

Here are three charts investors may want to see about SATS’s dividend.

The first chart we’re looking at is Chart 1 and it shows how SATS’s dividends have changed over a decade long period stretching from fiscal 2005 to fiscal 2015. There’s a thing to like about the chart: While there’s no clear pattern of growth, SATS has managed to consistently pay an annual dividend for the period we’re looking at.

Chart 1 - SATS's total dividend (ordinary + special dividend) from fiscal 2005 to fiscal 2015Chart 1 - SATS's total dividend (ordinary + special dividend) from fiscal 2005 to fiscal 2015
Source: S&P Global Market Intelligence

Chart 2 is the next one we’re focusing on and it illustrates SATS’s operating cash flow per share, free cash flow per share, and dividend per share for the same timeframe as Chart 1.

Dividends are ultimately paid by a company with cash and that cash can come from a few sources. It can come from a company taking on more debt, selling new shares, selling its assets, or simply generating cash from its daily business activities.

In general, the last option is the most sustainable choice. This is where free cash flow comes into play. It measures the cash flow generated by a company’s business (known as operating cash flow) that’s left after the firm has spent the necessary capital needed to maintain its businesses in their current states. The more free cash flow a company can possibly produce in the future, the fatter its future dividends can potentially be.

Chart 2 - SATS's total dividend, operating cash flow, and free cash flow per share from fiscal 2005 to fiscal 2015
Source: S&P Global Market Intelligence

What Chart 2 shows is mixed. SATS’s free cash flow per share has come in higher than its dividends for the most part and that’s nice to see. But, the company’s dividend in fiscal 2015 is already 88% of its free cash flow in the same year, so there’s not a lot of room for error here. Moreover, the company has also struggled to grow its operating cash flow in a meaningful manner.

Chart 3 is the last chart we’re looking at. It plots changes to SATS’s net-cash position from fiscal 2005 to 2015. (Net-cash refers to total cash and short-term investments net of all borrowings and capital leases.)

Chart 3 - SATS's net-cash position from fiscal 2005 to fiscal 2015
Source: S&P Global Market Intelligence

It’s important to note that dividends do not come with guarantees. A company with a weak balance sheet (one that is stuffed full of debt) runs the risk of having to cut or remove its dividends if its business environment turns sour.

Fortunately, SATS’s balance sheet looks to be in great shape. The company ended fiscal 2015 with a net-cash position of S$306 million.

A Fool’s take

In summary, SATS has a decent track record with paying a dividend, has been adept at generating free cash flow, and has a solid balance sheet to boot.

But, what we’ve seen from the three charts above – as important as they are – should not be taken as the final word on the company’s investing merits. A deeper study is required before any investing conclusion can be reached.

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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.