Should You Buy Singapore Technologies Engineering Ltd (SGX:S63) For Its Dividend?
Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Over the past 10 years, Singapore Technologies Engineering Ltd (SGX:S63) has returned an average of 4.00% per year to shareholders in terms of dividend yield. Does Singapore Technologies Engineering tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. See our latest analysis for Singapore Technologies Engineering
How I analyze a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
Is its annual yield among the top 25% of dividend-paying companies?
Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
Has it increased its dividend per share amount over the past?
Is its earnings sufficient to payout dividend at the current rate?
Will the company be able to keep paying dividend based on the future earnings growth?
How does Singapore Technologies Engineering fare?
The current trailing twelve-month payout ratio for S63 is 91.29%, meaning the dividend is not sufficiently covered by its earnings. However, going forward, analysts expect S63’s payout to fall into a more sustainable range of 83.54% of its earnings, which leads to a dividend yield of 4.63%. In addition to this, EPS should increase to SGD0.18, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment. 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. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Investors have seen reductions in the dividend per share in the past, although, it has picked up again. Compared to its peers, Singapore Technologies Engineering generates a yield of 4.18%, which is high for Aerospace & Defense stocks but still below the market’s top dividend payers.
Next Steps:
Whilst there are few things you may like about Singapore Technologies Engineering from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. 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. Below, I’ve compiled three essential aspects you should look at:
Future Outlook: What are well-informed industry analysts predicting for S63’s future growth? Take a look at our free research report of analyst consensus for S63’s outlook.
Valuation: What is S63 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 S63 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.
