StarHub Ltd's (SGX:CC3) investors are due to receive a payment of SGD0.03 per share on 6th of September. This takes the dividend yield to 6.6%, which shareholders will be pleased with.

Check out our latest analysis for StarHub

StarHub's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, StarHub's dividend made up quite a large proportion of earnings but only 48% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Looking forward, earnings per share is forecast to rise by 30.2% over the next year. 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

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was SGD0.20, compared to the most recent full-year payment of SGD0.084. The dividend has shrunk at around 8.3% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth May Be Hard To Achieve

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. StarHub hasn't seen much change in its earnings per share over the last five years.

Our Thoughts On StarHub's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. 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. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for StarHub that investors need to be conscious of moving forward. Is StarHub 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.