Yahoo Finance Here's Why We're Wary Of Buying Singapore Airlines' (SGX:C6L) For Its Upcoming Dividend
It looks like Singapore Airlines Limited (SGX:C6L) is about to go ex-dividend in the next 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Singapore Airlines' shares before the 9th of December to receive the dividend, which will be paid on the 22nd of December.
The company's next dividend payment will be S$0.10 per share, on the back of last year when the company paid a total of S$0.20 to shareholders. Based on the last year's worth of payments, Singapore Airlines stock has a trailing yield of around 3.6% on the current share price of SGD5.53. If you buy this business for its dividend, you should have an idea of whether Singapore Airlines's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
See our latest analysis for Singapore Airlines
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 80% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see Singapore Airlines's earnings per share have dropped 16% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Singapore Airlines's dividend payments are effectively flat on where they were 10 years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.
Final Takeaway
Has Singapore Airlines got what it takes to maintain its dividend payments? Earnings per share have been declining and the company is paying out more than half its profits to shareholders; not an enticing combination. At best we would put it on a watch-list to see if business conditions improve, as it doesn't look like a clear opportunity right now.
If you're not too concerned about Singapore Airlines's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. We've identified 2 warning signs with Singapore Airlines (at least 1 which doesn't sit too well with us), and understanding these should be part of your investment process.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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