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3 Things Investors Should Know About Singapore Exchange Limited’s 3.8% Dividend Yield

Credit: Simon Cunningham

Singapore Exchange Limited (SGX: S68) is the only stock market operator in Singapore.

At the company’s current share price, it has a trailing dividend yield of 3.8%, which is higher than the SPDR STI ETF’s (SGX: ES3) yield of 3.1%. The SPDR STI ETF is an exchange-traded fund that tracks the fundamentals of Singapore’s market barometer, the Straits Times Index  (SGX: ^STI).

Singapore Exchange’s market-beating yield may attract investors to take a deeper look at the company. Here are three things about Singapore Exchange’s dividend that may be useful for investors to know:

1. Dividend track record

Knowing how a company has performed in the past gives investors some clues on how the future may unfold. Here’s a summary of Singapore Exchange’s dividend track record going back to its fiscal year ended 30 June 2001 (FY2001):

sgx-dividend-chart
Source: Singapore Exchange website

One key takeaway is that Singapore Exchange has been paying an annual dividend for many years.

2. 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 related things to keep in mind with the pay-out ratio. First, pay-out ratios should be less than 100%; it’s tough for a company to sustain its dividend if it is paying out all its profit. Second, the logic thus follows that the lower the ratio is, the better it could be; a low pay-out ratio means that a company has some nice room for error when it comes to maintaining its dividends in the future.

Singapore Exchange’s pay-out ratio is 90%, since its trailing earnings per share and dividend per share are S$0.31 and S$0.28, respectively.

3. 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 balance sheet or at least have the ability to borrow money, if necessary, to pay its dividend. (It should be noted that the latter option is far from ideal.)

Generally speaking, a company with a strong balance sheet has the resources needed to help fund its dividend.

There are many ways to gauge the strength of a company’s balance sheet. One way is to look at the amount of cash and debt a company has; ideally, a company should not have high levels of debt.

Based on its latest financials (as of 30 September 2016), Singapore Exchange has S$930.8 million in cash and zero debt.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Singapore Exchange. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.