StarHub Ltd’s (SGX: CC3) shares closed yesterday’s trading session at a price of S$2.80 each, down some 6.7% from last Friday’s closing price. And as of the time of writing today (9:35 am), the company’s shares are exchanging hands at S$2.75 apiece, down some 1.8% from yesterday’s close.
What has happened to the company to warrant such a sharp decline? And more importantly, will StarHub’s shares continue sliding?
The cause of the decline
The company announced its 2016 fourth quarter and full year results last Friday evening. You can find out more about its earnings right here.
StarHub, which is a telco, is often seen as a utility type of company as it provides essential services to the Singapore community. Utility-type companies, in turn, are often linked with the idea of providing stable dividends and earnings for investors. In fact, StarHub and its local industry peers, Singapore Telecommunications Limited (SGX: Z74) and M1 Ltd (SGX: B2F), are some of the favourites among dividend investors in Singapore.
Yet, in StarHub’s latest earnings announcement, the company revealed that it would be reducing its quarterly dividend to S$0.04 per share for 2017. That’s a huge deal for StarHub’s investors.
The telco was paying an annual dividend of S$0.20 per share from 2010 to 2016. The current full-year dividend guidance for 2017 of S$0.16 per share would put StarHub’s dividend back to a level last seen in 2007.
Will there be a higher share price?
For the majority of the first quarter of 2016, StarHub’s shares were offering yields of around 5.5% to 6.0% based on its annual dividend guidance of S$0.20 per share for 2016. With its new dividend guidance, StarHub’s share price would need to be between S$2.67 and S$2.90 to maintain a similar yield range. The company’s current share price of S$2.75 is within the range I just mentioned.
It does seem that StarHub’s share price has a strong correlation with its expected dividend. So, if the company is unable to boost its dividend in the future, there might be little hope for a sharp rally in its share price anytime 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 Stanley Lim doesn’t own shares in any companies mentioned.