A Look At Singapore Telecommunications Limited’s Dividend From 2 Important Investing Angles

Singapore Telecommunications Limited (SGX: Z74) is one of the three main telecommunications companies in Singapore.

It has rewarded its shareholders over the years with an unbroken streak of annual dividends going back to at least its fiscal year ended 31 March 2005 (fiscal 2005).

But, that is then and this is now. What might Singtel’s dividend look like in the future?

There is no easy answer and all investors can do is to think about how the company’s business might perform in the years ahead as well as try to find some clues from the company’s historical business performance.

In terms of the company’s historical business performance, there are many important things to look at. But in here, we’d focus on just two aspects: The company’s free cash flow and leverage ratio.

Free cash flow

For a company to be able to sustain its dividend payments, it must be able to generate cash to pay its bills and maintain its businesses at their current state. Left over cash can then be used to pay out dividends.

In the financial community, that left-over cash is known as free cash flow and it is found by subtracting a company’s capital expenditure from its cash flow from operations.

Here’s a table showing Singtel’s free cash flow and cash dividends paid from fiscal 2012 to fiscal 2016:

Source: Singtel annual reports

You can see that Singtel’s free cash flow has mostly exceeded its cash dividends in its last five fiscal years, except for fiscal 2016.

Leverage ratio

Next, we can move on to the leverage ratio, which refers to Singtel’s debt to equity ratio here.

In general, the lower the ratio is, the better it could be – that’s because an increase in the leverage ratio could mean that a company is taking on more financial risks, all things being equal. And, the more financial risks a company faces, the less margin of safety there is to protect its dividend.

Coming back to Singtel, you can see in the table below that its debt to equity ratio has been creeping up slightly over its past few fiscal years:

Source: S&P Global Market Intelligence

What we’ve seen here can provide some useful insight, but they should not be taken as the final word on the investing merits of Singtel. Like I already mentioned, there are many aspects of a company’s historical business performance to look at when it comes to assessing the sustainability of its dividend.

Meanwhile, a careful appraisal of Singtel’s future business performance is also needed given that a fourth player would join Singapore’s telecommunications industry soon.

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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.