M1 Ltd’s Latest Dividend Cut: What the Management Team Said

M1 Ltd (SGX: B2F) cut its interim dividend for the first-half of 2017.

The local telco proposed a dividend of 5.2 cents, which was down from the seven cents that it paid out last year. The new dividend is a 25.7% decline. The dividend cut comes after M1 reduced its dividend by 15.6% in 2016.  

The matter did not escape the scrutiny of analysts during M1’s earnings briefing. There were questions about the sustainability of the current dividends and future expectations.

A look back

Back in 2016, M1 guided towards an 80% dividend payout. There were questions then on whether the dividend guidance was sustainable, given the digital investments and spectrum purchase that would consume M1’s resources in 2017.   

In the fourth-quarter, ex-Chief Financial Officer, Nicholas Tan, had responded:

“In terms of dividends, we have always been prudent in our policies and risen them higher when we think we have sufficient cash. And we are consistent and we will continue to maintain our dividend policy to be at least 80% of our net profit after tax.

So there is no change in that.”

M1’s net profits fell by 16% from $178.5 million in 2015 to $149.9 million in 2016. As mentioned earlier, the 2016 dividend also took a 15.6% cut. 

Back to the present

For the first-half of 2017, M1’s net profit declined 17.6%, from $83.5 million last year to $68.8 million this year. The interim dividend was reduced by 25.7%.

In the second-quarter earnings briefing, analysts questioned on whether it was prudent to keep the dividend payout ratio at 80%, given the investments that M1 needs to make. Lee Kok Chew, M1’s Chief Financial Officer and Chief Commercial Officer, answered:   

“On the payout ratio, all I can say at this point in time is that we are proposing to maintain the 80% dividend payout ratio.”

At the moment, it would seem like if profits fall, dividends will follow suit.

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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.