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Singapore Technologies Engineering Ltd (SGX:S63) has announced that it will be increasing its dividend from last year's comparable payment on the 15th of May to SGD0.05. This takes the dividend yield to 3.2%, which shareholders will be pleased with.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Singapore Technologies Engineering's stock price has increased by 40% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
View our latest analysis for Singapore Technologies Engineering
Singapore Technologies Engineering's Future Dividend Projections Appear Well Covered By Earnings
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Singapore Technologies Engineering's 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 44.4%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 55% which would be quite comfortable going to take the dividend forward.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the dividend has gone from SGD0.15 total annually to SGD0.20. This means that it has been growing its distributions at 2.9% per annum over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.
Singapore Technologies Engineering May Find It Hard To Grow The Dividend
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been crawling upwards at 4.0% per year. Singapore Technologies Engineering's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.
In Summary
Overall, we always like to see the dividend being raised, but we don't think Singapore Technologies Engineering 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 would be a touch cautious of relying on this stock primarily for the dividend income.