In StarHub Ltd?s (SGX: CC3) recent 2016 fourth quarter earnings release, the telco?s management guided towards a quarterly dividend of four cents per share for 2017.
The dividend guidance represents a 20% cut compared to 2016?s quarterly dividend of five cents per share. In fact, StarHub had paid out a quarterly dividend of five cents per share since the third quarter of 2009.
The reduction in StarHub?s dividend did not escape analysts? scrutiny during the company?s 2016 fourth quarter earnings briefing ? multiple questions on the new quarterly dividend were raised.
On the matter of the new dividend?s sustainability
The first question raised…
In StarHub Ltd’s (SGX: CC3) recent 2016 fourth quarter earnings release, the telco’s management guided towards a quarterly dividend of four cents per share for 2017.
The dividend guidance represents a 20% cut compared to 2016’s quarterly dividend of five cents per share. In fact, StarHub had paid out a quarterly dividend of five cents per share since the third quarter of 2009.
The reduction in StarHub’s dividend did not escape analysts’ scrutiny during the company’s 2016 fourth quarter earnings briefing – multiple questions on the new quarterly dividend were raised.
On the matter of the new dividend’s sustainability
The first question raised was about the new dividend’s sustainability. Dennis Chia, StarHub’s chief financial officer, answered:
“We continue to maintain a three-year outlook on our cash generation to support our dividends, so for the moment, based on the current outlook we do expect to be able to sustain the dividend.”
In short, StarHub is aiming to maintain a dividend of four cents per quarter for the next three years. Later on, Chia provided deeper insight on the management team’s considerations:
“… [the] dividend is really based on our current outlook and current competitive trends and clearly our mantra to provide customer excellence.
So we do want to ensure that we are able to continue investing in delivering that level of customer service which we believe will differentiate ourselves. As a result of which, this is why we are adjusting our dividends.”
Chia’s statement above captures the essence of the challenge that StarHub is facing.
For each dollar of free cash flow generated, StarHub has the choice of reinvesting it into its business, acquire a new business, buy-back shares, pile up the cash, or pay it out as a dividend.
Chia appears to be suggesting that StarHub needs to direct more funds towards efforts in differentiating its business from competitors. As such, how StarHub is using its cash flow resources is worth watching by investors.
A temporary shortfall
Chia also said that StarHub may face a shortfall in funds in 2017 which could lead to more debt for the company in the year.
However, Chia believes that StarHub’s capital expenditure will moderate in the short term to lower levels. When this will happen is still unknown, so investors may want to watch the company’s cash flow statements in the coming quarters.
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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 Chin Hui Leong doesn’t own shares in any companies mentioned.