The two companies can also be classified as income shares since they have dividend yields that are higher than that of the market average. However, which of the two gives investors more bang for their buck? To help answer that, let’s compare the dividend yields, dividend historical growth rates, and dividend payout ratios of the two firms.
SIA Engineering’s share price is currently at S$2.51, giving the company a trailing dividend yield of 4.8%. On the other hand, at ST Engineering’s share price of S$3.75 now, it has a trailing dividend yield of 4%.
The above shows that in terms of dividend yield alone, SIA Engineering triumphs over ST Engineering.
Dividend growth rate
The dividend yield tells us what a company has paid over the last 12 months, and it is useful information. However, we should also be looking at how the company’s dividend has changed over time, preferably over the last five years or more.
SIA Engineering’s ordinary dividend per share had fallen from S$0.20 in 2014 (the company has a 31 March year-end) to S$0.13 in 2018. For its fiscal year 2014, it also paid S$0.05 per share in special dividend.
As for ST Engineering, its ordinary dividend has been unchanged at S$0.15 from its financial year ended 31 December 2013 to 2017.
In terms of dividend growth, ST Engineering has the upper hand over SIA Engineering with its stable dividend payment.
Dividend payout ratio
Beyond the trailing dividend yield, we should also assess whether a company can maintain or grow its current dividend in the future. To do that, we can compare the company’s free cash flow to the amount in dividend that it pays.
I prefer a company to have a dividend payout ratio (dividend as a percentage of free cash flow) of less than 100% because it leaves some room for business slowdowns in the future.
In the fiscal year 2018, SIA Engineering’s free cash flow was S$22.8 million (or S$127.4 million including dividends received from joint ventures and associates), and its dividend for the year totalled S$S$145.5 million. This translates to a dividend payout ratio of more than 100%.
In comparison, ST Engineering’s payout ratio was 95%, given its free cash flow and dividend payment of S$491.1 and S$467.3 million, respectively, in 2017.
ST Engineering’s dividend payment looks more sustainable than SIA Engineering’s.
The Foolish takeaway
By looking at the three factors above, I conclude that ST Engineering is the more attractive dividend share with its sustainable dividend payout, even though its dividend yield is lower than that of SIA Engineering.
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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 Sudhan P doesn’t own shares in any companies mentioned.