Is Singtel (SGX: Z74) Stock Still a Good Buy Now?
Disclaimer: I may or may not have invest in any of them, what’s listed here is only for entertainment purpose only and it should never be used as any form of investment advice. This is my diary on my stock analysis, although I’ve been investing for +15 years reading +50 investment related books, I am still learning. I wish to share what I know and what I learn during my investment journey so you may learn from my success and mistakes as well!
Right now Singtel (Z74/ Z74.SI) share price is at SGD$2.520
At this price, Singtel is valued at a price-to-book ratio of 1.492 and a trailing distribution yield of 3.661%
With the current valuation, would I invest in it?
Let’s go through it using my 7 steps guide and see how I pick the Best Singapore Dividend Stocks.
With the understanding of how to identify a good dividend stock, here are the 7 steps I use to pick the Best Dividend Stocks in Singapore.
- Debt to Equity Ratio
- Dividend Yield
- Dividend payout ratio
- EPS Growth Rate
- Return of Equity (ROE)
- Price-to-Book Ratio
Singapore Telecommunications Limited is a leading communications technology group in Asia. Which is majority-owned (2019: 49.8 percent) by Temasek Holdings (Private) Limited.
With 140 years of history, Singtel provides a range of services.
2 Main services provided are:
- Digital services
Singtel’s target segments are:
- Consumers (Business to Customers)
- Enterprises (Business to Business)
The company itself has 3 business groups
- Group Consumer
- Group Enterprise
- Group Digital Life
The company presents itself in the following cities
- AIS in Thailand
- Bharti Airtel in India
- Globe in the Philippines
- Telkomsel in Indonesia
- Optus in Australia
In total, Singtel serves over 700 million mobile customers in 21 countries.
Debt To Equity Ratio
Check for: Less than 0.5 D/E Ratio
Looking at the latest data online.
Singtel have a D/E ratio of 0.365.
This is below the 0.5 D/E Ratio.
With a D/E ratio of less than 0.5, this means the company is not overly leveraged, they are likely able to finance the company’s operations.
The company has a low risk of defaulting.
My Opinion: Pass
Check for: More than a 2.5% dividend yield
For the Year 2022, Singtel is still forecasted to have a dividend yield of 3.661% dividend according to SGX.
This is higher than my target of 2.5%.
Looking at the distribution history, there is a reduction in the dividends distributed this year.
The year 2020, 2021, and 2022 are under the challenge of Covid 19. It is understandable that the company will want to keep most of its cash as a reserve.
It is higher than the risk-free rate (CPF OA Account) of 2.5%. I will give it a verdict of pass.
My Opinion: Pass
Dividend Payout Ratio
Check for: Less than 80% dividend payout ratio
At the time of writing, a quick check online shows that the dividend payout ratio for Singtel is 58.67% which is below my threshold of 80%.
It is good to take note that the previous year’s (2021) payout ratio is more than 80% at the high of 120.22% payout ratio which is way above my threshold of 80%.
(A payout ratio of more than 100% means the company is paying out more in dividends than its earnings. The dividend is most probably paid by borrowing money from the public in the form of bonds etc. This is an unsustainable practice and is usually a red flag for dividend investors.
I personally think dividends are great, but when the company takes on more debt just to pay the dividend. This will become unsustainable and will eventually jeopardize the company’s future.)
While the current payout ratio is lower than 100% which means it is paying out using its earnings.
Currently, its payout ratio is a pass.
My Opinion: Pass
EPS Growth Rate
Check for: More than 10% EPS Growth
A growing Earning Per Share (EPS) will mean that the company is making money and is taking care of its shareholders.
In any company, we will like to see a constantly growing EPS for 5 years or more.
A quick check on the finances of the company online.
The EPS 5 year growth rate is a shocking -13.216%!
Yup, the EPS for Singtel is Negative!
In other words, instead of growing the earnings of the company every year. Singtel is reducing its earnings at a rate of 13.2% each year!
This is very bad in my opinion.
My Opinion: Fail
High Return Of Equity (ROE)
Check for: More than 10% ROE
ROE is one of the most important ratios used by Warren Buffett.
Return on Equity is used to measure the ability of the company to generate income from shareholders’ money (equity). It is sometimes used as a measurement of the quality of management in the company. High ROE will mean good management of the shareholder’s money.
At the time of writing, the ROE of Singtel have an ROE 7.140%.
This is low for a company that can be called a good dividend stock.
My Opinion: Fail
Price To Book Ratio
Check for: a P/B Ratio of less than 1.8
SingTel is a blue chip company with is commonly traded by the general public like you and me. Therefore, its price is usually traded at its book value or above.
At the time of writing, the current P/B ratio of Singtel is 1.492.
This means it is trading at a 49% premium to its book value.
My Opinion: Pass
Check for: Not just having a MOAT, but a great MOAT
Singtel is a telecommunication service company with a business that is simple to understand.
In the past, there is only 3 main telcos found in Singapore; Singtel, M1, and Starhub. But in recent years there are a surge in the number of telecommunication providers.
The 13 telecommunication providers found in Singapore are:
- TPG Mobile
- Circles Life
- GOMO Mobile
- Grid Mobile
- Zero 1
Although SingTel is still the main provider of telco service, the MOAT of the company is in question. In addition, more people are moving from Prepaid Plan to Sim Only Plan, and the earnings of the company are further reduced.
According to Phil’s book Rule#1 investing, SingTel was having a “switching MOAT”, but this MOAT is severely weakened. Thus, it has to compete by reducing prices in its mobile plans.
My Opinion: Partially Pass
SingTel has a final score of 5.5/10.
With a negative ROE and EPS growth rate, I will not invest in it. SingTel was a great company with a good MOAT in the past, but its MOAT has deteriorated, and currently facing tough competition in the telecommunication sector.
In 2017, SingTel sold NetLink Trust. A business that had a monopoly play in the industry, which in my opinion, is a very bad move.
In recent years, more competitors have joined the party which have a major impact on SingTel’s MOAT.
Therefore, I will not consider buying SingTel.
Below is how I’ve scored SingTel.
|Debt to Equity Ratio||High (2)||2|
|Dividend Yield||Low (1)||1|
|Dividend payout ratio||Low (1)||1|
|EPS Growth Rate||Low (1)||0|
|High Return on Equity (ROE)||Low (1)||0|
|Acceptable Price-to-Book Ratio||Low (1)||0.5|
|MOAT||Very High (3)||1|
Why do I find some metrics more important than others?
There are 3 attributes in a company that Warren Buffett wants in particular:
- Wonderful Company at Fair Price
- Stable & Understandable Business
- Vigilant Leadership in Risk Management
This translate to the following 3 metrics I have on my list:
Thus, for these metrics, I will put a higher weightage in my scoring.
Would you invest in Singtel now?
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I think you got a typo error using SBS Transit on Singtel.
Thanks bro, it is changed 🙂