A Look At StarHub Ltd’s Track Record as a Dividend Stock

Telecommunications outfit StarHub Ltd  (SGX: CC3) is a company that has consistently paid an annual dividend over its last 10 fiscal years.

This raises the question: What does StarHub’s future dividends look like?

Unfortunately, there is no easy answer. There is just no simple calculation that can tell investors for sure whether a company’s dividend is sustainable or not.

But, there are still 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 profit-history, (2) its pay-out ratio, and (3) the strength of its balance sheet.


A company’s profits are an important source of its dividends – it is thus tough for a company to pay a dividend if it has little or no profit.

Let’s see how StarHub’s profit picture over the last five years looks like. What I’m watching out for are big declines or losses.

Starhub net profit table
Source: S&P Global Market Intelligence

The table above shows that StarHub has managed to grow its profit from 2011 to 2015. There was also only one year in which profit declined (2013) and it was a low single-digit fall. One thing worth noting though is that the telco’s profit growth has slowed noticeably over the past three years.

The pay-out ratio

The pay-out ratio measures a company’s dividend as a percentage of its profit.

There are two things to keep in mind with the ratio in general. First, pay-out ratios should be less than 100%; it can be an extremely difficult task for a company to sustain its dividend if it is paying out all its profit. Second, the lower the ratio is, the better it could be; a low pay-out ratio can usually be seen as a company having large room for error to maintain its dividends.

StarHub had dished out a dividend of S$0.20 per share in 2015. It also had earnings per share of S$0.226 in the same year. This results in a pay-out ratio of 88%.

Strength of the balance sheet

The balance sheet is a snapshot of a company’s financial heath at any point in time. If a company has a weak balance sheet (in other words, a balance sheet that is laden with debt), its dividends may be negatively impacted if its business runs into some tough times – this is analogous to how an ill person is less able to withstand shocks.

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.

In the case of StarHub, its latest financials (for the quarter ended 31 March 2016) show that it has a net-debt to equity ratio of 147%. Investors may want to note that high net-debt to equity ratios are not uncommon in the telecommunications industry.

A Fool’s take

To sum it up, StarHub is a company with (1) a track record of producing stable profits, (2) a pay-out ratio of less than 100%, and (3) a net-debt to equity ratio of over 100%.

It’s worth mentioning again that all we’ve seen with StarHub above should not be taken as the final word on its investing merits – as I had noted earlier, there are many other aspects 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.