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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that StarHub Ltd (SGX:CC3) is about to go ex-dividend in just 3 days. You will need to purchase shares before the 15th of August to receive the dividend, which will be paid on the 30th of August.
StarHub's next dividend payment will be S$0.022 per share. Last year, in total, the company distributed S$0.09 to shareholders. Looking at the last 12 months of distributions, StarHub has a trailing yield of approximately 6.2% on its current stock price of SGD1.45. If you buy this business for its dividend, you should have an idea of whether StarHub's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for StarHub
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. StarHub distributed an unsustainably high 133% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. A useful secondary check can be to evaluate whether StarHub generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 226% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how StarHub intends to continue funding this dividend, or if it could be forced to the payment.
Cash is slightly more important than profit from a dividend perspective, but given StarHub's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.
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 StarHub'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.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. StarHub has seen its dividend decline 6.7% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.