Singtel Dividend Cut review: is it still worth considering despite the 39% lower DPS?

The Singtel (Singapore Telecommunications)  Dividend has been paid out consistently for the past 20 years. Over this period, the dividend yield never dipped below 4.4%. However, the share price and payout for 2020 and 2021 have been impacted heavily by intense competition, the COVID-19 pandemic, and structural changes. Despite this, Singtel telco is still worth considering, and investors can rely on it due to the consistent dividend payout.

Singtel’s Problems Today

Singtel’s drop in revenue today is because the company stayed on the same business model even when the smartphone revolution was taking place. They chose to focus on selling phone and internet services to businesses and consumers, which doesn’t give them any pricing power. The COVID-19 just accelerated the decline because the company was already going through increased competition and a lack of pricing power.

Revenue and Regional Associate Performance

For FY2021, Singtel posted operating revenue of S$15.6 billion. This amount was down 5% from S$16.5 billion a year ago.

The low revenue is a result of reduced sales from most of Singtel’s business segments. However, this was partially offset by the Infocomm Technology (ICT) business growth. The majority of Singtel’s revenue, about 52%, came from Australia, while Singapore brought in 39%, and 9% is from the US and other places where Singtel operates.

If you look at the financial results of FY2020 and FY2021, the operating revenue in all business segments from mobile, pay TV, data, and internet, fixed voice, and ICT declined. The performance in the 2020 Fiscal Year was much better.

Partial Year Profit Falls 93% Due To Exceptional Items

Singtel’s underlying net profit for the FY2021 second half was slightly lower than predicted. It fell by 22% year on year to S$896 million.

Analysts had expected an underlying net profit of S$900 million and S$1 billion. However, Singtel announced exceptional items of S$809 million for six months period ended 31 March 2021; the net profit fell 93% year-on-year. This declined from S$1.2 billion to S$88 million in the second half of FY2020. Following the release of these financial results, Singtel shares opened at 2.4% lower.

39% Down on Dividend per Share

The Singtel board recommended a final ordinary dividend per share (DPS) of S$0.024. The total ordinary DPS for the year became S$0.075. This number is 39% lower than FY2020’s total DPS, which was at S$0.1225.

The dividend yield also fell to 3.1%, which falls below the expected yield of 5%. This lower dividend occurred because after factoring in net exceptional charges of S$1.18 billion, net profit declined 49% to S$554 million. Nevertheless, FY2021’s total dividend payout was about S$1.23 billion, which is a payout ratio of 71% of the underlying net profit.

Singtel’s Strategic Reset to Look Forward to in 2022

The resurgence of Covid-19 and movement restrictions continue to affect telco companies like Singtel. The appointment of a new Singtel CEO came with the introduction of a strategic review to guide the company through 2022. One of the company’s strategies involves capitalizing on mass digitalization because their customers have rushed to digitalize and transform their businesses.

The telco also announced that the strategic reset is essential in unlocking the value of its quality infrastructure assets, including its data centers, towers, satellites, and subsea cables. This will be critical for the company’s growth. In addition, Singtel is also developing ICT, and digital services spark growth engines and sustain the company in the face of increased competition.

Singtel’s 3.3% Dividend

Singtel has paid out a 3.3% dividend at a 71% payout ratio. But from now on, the company intends to pay out 60-80% of their profit. This will increase the dividend, but it will be tough to see how Singtel will maintain this payout, especially since executing the strategic vision requires a lot of money.

Our Verdict

Singapore Communications (Singtel) is one of the oldest telcos in Singapore. Since its public listing in the SGX, the company has consistently paid out a dividend to its shareholders. The increased competition and the COVID pandemic might have affected the share price, but the company is still worth considering investments.

The recent strategic review to boost the company’s growth might unlock more revenue and boost the firm’s net profit in the coming years. Their dividend yield has never gone below 4.4% even with the pandemic and recession; therefore, this stock is a good investment choice for veterans and new investors. The telco landscape has become challenging for companies like Singtel, but they are worth your time if you need to earn dividends.

What is Singtel’s Dividend Payout Schedule?

As a shareholder with Singtel, you should expect your dividends twice every year. The telco pays the first payment in January after it consolidates its performance for the first half, and the second payment is in August after the annual general meeting (AGM).

How Much Dividend Will I Receive?

Singtel’s first dividend payout in 2021 amounted to $833 million, which is 5.1 cents per share. The company distributed close to 100% of its underlying net profit from April – September 2020 to its shareholders COVID-19 pandemic, which affected the economies worldwide. However, this payout is very low compared to the pre-COVID-19 era, where the firm paid out dividends consistently at above 15 cents per share.

Key Takeaways

• Singtel’s drop in revenue and growth has been because of the poor business model, which gave the firm zero control on the pricing power.
• The development of the Singtel strategic review might spark more growth and increase the revenue and net profits in the coming years.
• The telco is a good investment choice if you prefer a company with consistent dividend payouts, making it perfect for long-term investors.

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