Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Singapore Airlines Limited (SGX:C6L) has been paying a dividend to shareholders. Today it yields 4.2%. Does Singapore Airlines tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
How I analyze a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has it increased its dividend per share amount over the past?
- Is is able to pay the current rate of dividends from its earnings?
- Will the company be able to keep paying dividend based on the future earnings growth?
Does Singapore Airlines pass our checks?
Singapore Airlines has a trailing twelve-month payout ratio of 98%, which means that the dividend is not well-covered by its earnings. In the near future, analysts are predicting a more sensible payout ratio of 57%, which, assuming the share price stays the same, leads to a dividend yield of around 3.7%. In addition to this, EPS should increase to SGD0.59, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Not only have dividend payouts from Singapore Airlines fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. These characteristics do not bode well for income investors seeking reliable stream of dividends.
In terms of its peers, Singapore Airlines has a yield of 4.2%, which is high for Airlines stocks but still below the market’s top dividend payers.
Now you know to keep in mind the reason why investors should be careful investing in Singapore Airlines for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering 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. I’ve put together three important aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for C6L’s future growth? Take a look at our free research report of analyst consensus for C6L’s outlook.
- Historical Performance: What has C6L’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.