Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Singapore Technologies Engineering Ltd (SGX:S63) has paid a dividend to shareholders. It currently yields 4.3%. Does Singapore Technologies Engineering tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
How I analyze a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is it the top 25% annual dividend yield payer?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has dividend per share amount increased over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it have the ability to keep paying its dividends going forward?
Does Singapore Technologies Engineering pass our checks?
The company currently pays out 86.5% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. In the near future, analysts are predicting a payout ratio of 81.6%, leading to a dividend yield of around 4.7%. Furthermore, EPS should increase to SGD0.19.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Although S63’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.
In terms of its peers, Singapore Technologies Engineering has a yield of 4.3%, which is high for Aerospace & Defense stocks but still below the market’s top dividend payers.
With these dividend metrics in mind, I definitely rank Singapore Technologies Engineering as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. 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 fundamental aspects you should further research:
- 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.
- Other 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 past 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. For errors that warrant correction please contact the editor at email@example.com.