A Look At Singapore Technologies Engineering Ltd’s Track Record as a Dividend Stock

Singapore Technologies Engineering Ltd (SGX: S63) is one of those companies in Singapore’s stock market that has consistently paid an annual dividend over its last 10 fiscal years.

Knowing this fact, some of you might ask: But is ST Engineering’s dividend sustainable in the future? Sadly, there is no easy answer. There is no simple calculation that can tell us for sure whether a company can sustain its dividend.

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.

Profit history

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

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

We can see that ST Engineering’s profit has more or less been stable, fluctuating between S$528 million and S$581 million for the period we’re looking at.

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 general things to keep in mind here. 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 could be; a low pay-out ratio would mean that a company has some room for error when it comes to sustaining its dividends.

ST Engineering had paid a dividend of S$0.15 per share in 2015. With its earnings per share of S$0.1705 in the same year, that works out to a pay-out ratio of 88%.

Strength of the balance sheet

Generally speaking, a company with a strong balance sheet has higher odds of being able to protect its dividend.

To gauge the strength of a company’s balance sheet, there are many ratios that can be used. One of them is the net-debt to shareholders’ equity ratio (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 ST Engineering, its latest financials (as of 30 June 2016) show that it has a net-debt to shareholders’ equity ratio of just 4%.

A Fool’s take

In all, ST Engineering is a company with a history of stable earnings, a pay-out ratio of 88%, and a low net-debt to shareholders’ equity ratio.

At this point, it’s worth repeating that all we’ve seen with ST Engineering above should not be taken as the final word on its investing merits – as I had mentioned 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.