Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. StarHub Ltd (SGX:CC3) has returned to shareholders over the past 10 years, an average dividend yield of 6.00% annually. Let’s dig deeper into whether StarHub should have a place in your portfolio. See our latest analysis for StarHub

How I analyze a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Is their annual yield among the top 25% of dividend payers?

• Does it consistently pay out dividends without missing a payment of significantly cutting payout?

• Has it increased its dividend per share amount over the past?

• Can it afford to pay the current rate of dividends from its earnings?

• Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

How does StarHub fare?

StarHub has a trailing twelve-month payout ratio of 111.09%, which means that the dividend is not well-covered by its earnings. Going forward, analysts expect CC3’s payout to increase to 133.69% of its earnings, which leads to a dividend yield of 6.30%. However, EPS is forecasted to fall to SGD0.13 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income. If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. CC3 investors will be well aware there has not been any increase in the dividend payments over the last 10 years, although the payments have at least been steady. However, income investors that value stability over growth may still find CC3 appealing. Relative to peers, StarHub generates a yield of 6.50%, which is high for Wireless Telcom stocks.

Next Steps:

Taking all the above into account, StarHub is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. However, if you are not strictly just a dividend investor, the stock could still offer 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 key factors you should look at:

• Future Outlook: What are well-informed industry analysts predicting for CC3’s future growth? Take a look at our free research report of analyst consensus for CC3’s outlook.

• Valuation: What is CC3 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 CC3 is currently mispriced by the market.

• Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.