How Does Singapore Technologies Engineering Ltd (SGX:S63) Fare As A Dividend Stock?

A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically, Singapore Technologies Engineering Ltd (SGX:S63) has paid dividends to shareholders, and these days it yields 4.0%. Should it have a place in your portfolio? Let's take a look at Singapore Technologies Engineering in more detail.

Check out our latest analysis for Singapore Technologies Engineering

Here's how I find good dividend stocks

When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:

• Is their annual yield among the top 25% of dividend payers?
• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
• Has dividend per share amount increased over the past?
• Does earnings amply cover its dividend payments?
• Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

How well does Singapore Technologies Engineering fit our criteria?

The company currently pays out 95% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is not sufficiently covered by its earnings. However, going forward, analysts expect S63's payout to fall into a more sustainable range of 79% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 4.5%. Moreover, EPS should increase to SGD0.19, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.

If there's one type of stock you want to be reliable, it's dividend stocks and their stable income-generating ability. Not only have dividend payouts from Singapore Technologies Engineering fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. These characteristics do not bode well for income investors seeking reliable stream of dividends.

In terms of its peers, Singapore Technologies Engineering produces a yield of 4.0%, which is high for Aerospace & Defense stocks but still below the market's top dividend payers.

Next Steps:

Now you know to keep in mind the reason why investors should be careful investing in Singapore Technologies Engineering for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three essential factors you should further research:

1. Future Outlook: What are well-informed industry analysts predicting for S63’s future growth? Take a look at our free research report of analyst consensus for S63’s outlook.
2. Valuation: What is S63 worth today? Even if the stock is a cash cow, it's not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether S63 is currently mispriced by the market.
3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.