Singtel offers attractive dividends amidst unexciting growth

Its dividend payout ratio of 81% is the highest since 2011.

For 2018, Singtel declared a total dividend of 20.5 cents, which includes a final dividend of 10.7 cents, an interim dividend of 6.8 cents, and a special dividend of 3 cents. This represents an 81% payout ratio for ordinary dividends.

Moreover, it said it intends to give away 17.5 cents for the next two years, and thereafter revert back to paying 60%-75% of net profit. UOB Kay Hian analyst Jonathan Koh said, "We see the promise as a demonstration of management’s confidence that group earnings would not be unduly affected by increased competition in Singapore and Australia."

However, OCBC Investment Research analyst Eugene Chua noted that the telco has unexciting earnings growth ahead as it expects consolidated revenue to grow by low single digit and EBITDA to be stable. "Mobile service revenue from Singapore is expected to decline by mid-single digit level but is expected to grow by low single digit in Australia. Group ICT revenue is expected to increase by mid-single digit, which includes cybersecurity revenue that is expected to grow by low-teens," he added.

Meanwhile, operating revenue at Amobee Group is expected to grow by mid-teens and EBITDA is projected to increase. "Capex on an accrual basis and cash basis are expected to both be lower at around $2.2b. Finally, group free cash flow is guided to be around $1.9b, and dividends from regional associates are expected to be around $1.4b," Chua added.

For RHB Research, the dividend recalibration is a positive move as, the brokerage said, "It provides certainty to investors on the sustainability of the payout, and safeguards against further earnings headwinds from its regional mobile associates."

They also noted that the dividend payout of 81% was the highest since FY2011. "We also note that capex for FY2019 is guided to decline to $2.2b (Optus’ 3-year investment cycle is behind) from $2.4b (excluding spectrum payments), coupled with earlier proceeds from the sale of Netlink Trust, which provides headroom for potential M&As in the medium term," they added.

Chua concluded, "We remain positive on Singtel’s longer-term outlook for its growing exposure in digital-related businesses, and entrenched position in the regional mobile markets."