Singapore Telecommunications (SGX:Z74) Is Increasing Its Dividend To S$0.048

Singapore Telecommunications Limited's (SGX:Z74) dividend will be increasing to S$0.048 on 18th of August. Based on the announced payment, the dividend yield for the company will be 3.5%, which is fairly typical for the industry.

Check out our latest analysis for Singapore Telecommunications

Singapore Telecommunications' Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Singapore Telecommunications' dividend made up quite a large proportion of earnings but only 53% of free cash flows. This leaves plenty of cash for reinvestment into the business.

The next year is set to see EPS grow by 28.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 55%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was S$0.16 in 2012, and the most recent fiscal year payment was S$0.093. This works out to be a decline of approximately 5.2% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Earnings per share has been sinking by 13% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Our Thoughts On Singapore Telecommunications' Dividend

Overall, we always like to see the dividend being raised, but we don't think Singapore Telecommunications will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Singapore Telecommunications is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Singapore Telecommunications that investors should take into consideration. Is Singapore Telecommunications not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.