A Look At Singapore Telecommunications Limited’s Record As A Dividend Stock

Singapore Telecommunications Limited (SGX: Z74) is a company that has consistently paid an annual dividend over its last 10 fiscal years.

This raises the question: Is SingTel’s dividend sustainable in the future?

Unfortunately, there is no easy answer for the question above. Unlike a stock’s dividend yield, which is easy to calculate, there is no simple math that can tell investors for sure whether a company’s dividend is sustainable.

That said, there are some things about a company’s business we can look at for clues. Here are three of them, keeping in mind that they are not the only important aspects: (1) the company’s track record of generating a profit, (2) the company’s pay-out ratio, and (3) how strong the company’s balance sheet is.

Track record in generating a profit

A company’s profits are an important source for dividends. What I would like to find out is if Singtel has seen any losses or big dips in profit over its last five fiscal years.

Singtel's net income
Source: S&P Global Market Intelligence

You can see from the table that Singtel had suffered a 12% decline in profit in fiscal 2013 (fiscal year ended 31 March 2013). It’s also worth noting that the telco has not been able to exhibit any profit growth over the past few years, with its profit in fiscal 2012 being higher than in fiscal 2016.

The pay-out ratio

The pay-out ratio refers to the amount of a company’s profit that is paid out to shareholders as a dividend. It is often expressed as a percentage and a pay-out ratio of 100% means that a company is paying out all its profit as a dividend.

There are two things to keep in mind in general. First, pay-out ratios should be less than 100% as it’s tough for a company to sustain its dividend if it’s paying out all its profit. Second, the lower the ratio is, the better it is for investors; a low pay-out ratio would mean that a company has some nice room for error when it comes to sustaining its dividends in the future.

In fiscal 2016, Singtel’s dividend of S$0.175 per share was 72% of its earnings per share of S$0.243.

Strength of the balance sheet

Dividends are paid out to investors in the form of cash. Thus, a company must have enough cash in the till or at least have the ability to borrow money (if necessary) to pay its dividend. Generally speaking, a company with a strong balance sheet has the resources needed to help fund its dividend.

To gauge the strength of a company’s balance sheet, the net-debt to shareholder’s equity ratio can be used (net-debt refers to total borrowings and capital leases net of cash and short-term investments). A ratio of over 100% would mean that a company’s net-debt outweighs its shareholder’s equity.

Coming to Singtel, the telco has a net-debt to equity ratio of 38% based on its latest financials.

A Fool’s take

Summing up what we’ve seen, Singtel has payout and net-debt to equity ratios that are not too high, although the company has had a lack of profit growth in recent years.

I’d like to stress again that all that we’ve seen with SingTel above should not be taken as the final word on its investing merits – as I had mentioned, there are many other areas of the company’s business to study when it comes to assessing the sustainability of its dividend.

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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 contributor Lawrence Nga doesn’t own shares in any companies mentioned.