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Here’s What StarHub Ltd’s Management Said About Its Dividend Recently

Earlier this year when StarHub Ltd (SGX: CC3) released its 2016 fourth quarter earnings, management guided towards a quarterly dividend of $0.04 per share for 2017.

The guided dividend is a 20% cut compared to 2016’s quarterly dividend of $0.05 per share. In fact, StarHub had paid out a quarterly dividend of $0.05 per share since the third quarter of 2009. In 2017’s first quarter, StarHub followed through with its guidance and declared a dividend of $0.04 per share.

During StarHub’s 2017 first quarter earnings briefing, there were several questions from analysts directed towards the company’s new quarterly dividend.

The issue of sustainability

StarHub’s chief executive officer, Tan Tong Hai, reiterated the telco’s dividend guidance for 2017 in his opening speech:

“… we’ll declare an interim quarterly dividend of $0.04 per ordinary share for first quarter and we intend to pay a quarterly cash dividend of $0.04 per ordinary share for full year 2017, for financial year 2017.”

But questions remained over the sustainability of StarHub’s dividend. In particular, analysts were looking for the telco’s dividends to be supported by its free cash flow. In the 2016 fourth quarter earnings briefing, StarHub’s chief financial officer, Dennis Chia, said that there would be a shortfall in free cash flow in 2017:

“Your other question or your fourth question on the sustainability of dividends, so I think just to reiterate, we believe that number is actually sustainable, although we do believe that if you look at the guidance of EBITDA and the CapEx levels that we expect in 2017, we will have a shortfall.”

StarHub’s cash flow situation was made more difficult after the conclusion of the spectrum auction in April this year. Chia said during StarHub’s 2017 first quarter earnings briefing that the spectrum payment was higher than anticipated:

“On the dividend, the spectrum payment and in terms of the auction and the amount that we are looking to have to pay, it’s obviously higher than what we anticipated.”

However, Chia explained that the spectrum auction payment would be a one-time event, and the spectrum is expected to last for StarHub for many years ahead. He maintained that the guidance for a quarterly dividend of $0.04 per share for StarHub still holds:

“However, in line with the fact that this is a one-time event and this spectrum will last us for the next 15- 16 years, we look at the overall operating cash flows on a three-year sustainable trend in terms of guiding our dividend per share is consistent with how the Company has been guiding the market up to this stage.

So as of now, therefore, we maintain the dividend of $0.04 per share for the quarter, as well as for the year and this has not changed with the current information.”

Earlier in the 2017 first quarter earnings briefing, Chia said that StarHub generated $0.067 per share in free cash flow for the quarter. That is sufficient to cover StarHub’s dividend of $0.04 per share. Investors should keep watching StarHub’s free cash flow for more clues about its future dividends.

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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.