When we talk about the local Singapore stock market, a lot of investors like to promote the value of dividend stocks here.
Also referred to as “yield”, dividends can provide investors with reliable and growing passive income streams over time.
Better yet, all those income streams (in the form of dividends) are tax free in Singapore. What’s not to like?
One of the biggest and most well-known companies in Singapore, at least from a dividend perspective, is Singapore Telecommunications Ltd (SGX: Z74), also known as Singtel.
So, for investors who want a reliable and growing dividend stock, is Singtel a worthy option for their money?
When we identify great dividend stocks we want to invest in over the long term, we need to ensure that the company’s business is on a solid footing.
In Singtel’s case though that, unfortunately, isn’t the case. The company’s business has been hit hard by intense competition in the local Singapore market as the government has opened up the telecommunications space to other providers.
For consumers, that has been a great move. They have seen their phone bills come down and the price of data plunge – all great things for those of us who own a smartphone.
However, for investors in Singtel, it has accelerated the company’s decline. Meanwhile, that correlates directly to its dividend payment.
If a company’s business suffers, that also negatively impacts its ability to pay a growing or rising dividend.
That’s because dividends are paid out of profits. In Singtel’s case, their profits have been falling. In 2015, Singtel’s net profit sat at S$3.78 billion.
Last year, Singtel posted net profit of just S$1.08 billion so down more than 70% over the past five years.
Unsurprisingly, its dividend has been cut as well. Whereas it paid a dividend per share (DPS) of 17.5 Singapore cents in 2015, last year its DPS fell to 12.15 Singapore cents.
Losers likely to keep losing
What about Singtel’s share price? Well, over the past five years it has fallen by 35%, all while cutting its dividend.
It’s a great illustration of the “double whammy” if you’re unfortunate to invest in a dividend stock which cannot keep up its payments.
That’s because when it cuts its dividend, the share price falls. As the business continues to do poorly, the share price also performs disappointingly.
What we should be aiming for is investing in companies with growing dividends and an expanding share price. That will help you grow your wealth over the long term.
The bottom line is that Singtel is a poor dividend stock for anyone who wants reliable and growing income. For long-term investors, the sustainability of dividend payments is one of the most important factors.
As Singtel’s business continues to be disrupted and its future in the world of 5G looks uncertain (in terms of how it can effectively monetise the trend), long-term investors are better off looking elsewhere for dividend ideas.
Disclaimer: ProsperUs Head of Content Tim Phillips doesn’t own shares of any companies mentioned.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.
In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.