Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Singapore Telecommunications Limited (SGX:Z74) is about to go ex-dividend in just 3 days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company’s books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Singapore Telecommunications’ shares before the 31st of July to receive the dividend, which will be paid on the 19th of August.
The company’s next dividend payment will be S$0.103 per share, on the back of last year when the company paid a total of S$0.18 to shareholders. Last year’s total dividend payments show that Singapore Telecommunications has a trailing yield of 4.2% on the current share price of S$4.39. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Singapore Telecommunications is paying out an acceptable 54% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Singapore Telecommunications paid out more free cash flow than it generated – 131%, to be precise – last year, which we think is concerningly high. It’s hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we’d wonder how the company justifies this payout level.
While Singapore Telecommunications’s dividends were covered by the company’s reported profits, cash is somewhat more important, so it’s not great to see that the company didn’t generate enough cash to pay its dividend. Cash is king, as they say, and were Singapore Telecommunications to repeatedly pay dividends that aren’t well covered by cashflow, we would consider this a warning sign.
Check out our latest analysis for Singapore Telecommunications
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