Singapore Telecommunications' (SGX:Z74) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Singapore Telecommunications Limited (SGX:Z74) has announced that it will be increasing its dividend by 27% on the 19th of August to SGD0.10, up from last year's comparable payment of SGD0.079. The payment will take the dividend yield to 4.2%, which is in line with the average for the industry.

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Singapore Telecommunications' Projected Earnings Seem Likely To Cover Future Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Singapore Telecommunications' dividend was only 70% of earnings, however it was paying out 796% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Over the next year, EPS is forecast to fall by 15.6%. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 88%, meaning that most of the company's earnings are being paid out to shareholders.

Check out our latest analysis for Singapore Telecommunications

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was SGD0.175 in 2015, and the most recent fiscal year payment was SGD0.17. Dividend payments have shrunk at a rate of less than 1% per annum over this time frame. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Singapore Telecommunications has grown earnings per share at 30% per year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Singapore Telecommunications could prove to be a strong dividend payer.

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. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Singapore Telecommunications has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.