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A Look At StarHub Ltd’s Dividend From 2 Important Investing Angles

StarHub Ltd (SGX: CC3) is one of the three main telecommunications companies in Singapore.

It has rewarded its shareholders over the years by consistently paying an annual dividend over its last 10 fiscal years. The company has also managed to maintain its dividend at the level of S$0.20 per share from 2010 to 2015.

But that is then and this is now. What might StarHub’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 the level of cash and debt.

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 StarHub’s free cash flow and cash dividends paid from fiscal 2012 to fiscal 2016:

starhub-fcf-and-cash-dividend
Source: StarHub’s annual reports

You can see that StarHub’s free cash flow has mostly come in lower than its cash dividends for the years we’re looking at.

Level of cash and debt

The level of cash and debt is a gauge of how strong or weak a company’s balance sheet is. In general, when debt is really high, a company runs the risk of having to eliminate or reduce its dividends when its business runs into temporary difficulties.

In StarHub’s case, the company has S$522.9 million in cash and S$987.5 million in total borrowings.

A Foolish conclusion

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 StarHub. 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.

Moreover, investors may want to think about StarHub’s future business performances given that fourth player would join Singapore’s telecommunications industry soon.

If you like what you've seen, you can get even more investing insights and analyses from The Motley Fool's weekly investing newsletter Take Stock Singapore. It's FREE, so do check it out here.

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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.