Right now Singtel (Z74/ Z74.SI) share price is at SGD$2.32
At this price, Singtel is valued at price-to-book ratio of 1.41 and a trailing distribution yield of 4.36%
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.
Recommended Read: Warren Buffet’s 5 Characteristics of a Good Dividend Paying Stock
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 year of history, Singtel provides a range of service.
2 Main service provided are:
- Digital services
Singtel’s target segment are:
- Consumers (Business to Customers)
- Enterprises (Business to Business)
The company itself have 3 business groups
- Group Consumer
- Group Enterprise
- Group Digital Life
Th company presence 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.
Check for: Less than 0.5 D/E Ratio
Looking at the latest annual report for Year 2020.
Singtel have a D/E ratio of 0.592.
This is slightly above 0.5 D/E Ratio.
With a D/E ratio of more than 0.5, this means, although the company is not overly leverage but, they are still using a significant amount of debt to finance the company’s operations.
The company have an moderate risk of the company defaulting.
The company is having more leverage than what I’ve preferred.
My Opinion: Fail
Check for: More than 2.5% dividend yield
For Year 2020, Singtel pay a dividend of 0.106 which translate to a dividend yield of 4.36%.
This is higher than my target of 2.5%.
Looking at the distribution history, there is a reduce in the amount of dividend distributed this year.
Year 2020 and 2021 are both under the challenge of Covid 19. It is understandable that the company will want to keep most of it’s cash as 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 120.22% which is way above my threshold of 80%.
A payout ratio of more than 100% means the company is paying out more in dividend than it’s 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.
My Opinion: Fail
PS. When the dividend payout ratio is more than 100%. The company will not be something which I want to invest.
EPS Growth Rate
Check for: More than 10% EPS Growth
In any company, we will like to see a constant growing EPS for 5 years or more.
Quick check on the 2020 annual report.
The EPS 5 year growth rate is a shocking -22.604%!
Yup, the EPS for Singtel is Negative!
In other words, instead of growing the earning of the company every year. Singtel is reducing its earning at a rate of 22.6% 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 ratio used by Warren Buffett.
Return of Equity is used to measures the ability of the company to generate income from shareholder’s 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 of just 3.795%.
This is very low for a company that can be called a good dividend stock.
My Opinion: Fail
Check for: 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, it’s price is usually traded at it’s book value or above.
At the time of writing, the current P/B ratio of Singtel is 1.411.
Which means, it is trading at a 41% 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 telco found in Singapore; Singtel, M1 and Starhub. But in the recent years there are a surge in the numbers of telecommunication providers.
The 13 telecommunication provider found in Singapore are:
- TPG Mobile
- Circles Life
- GOMO Mobile
- Grid Mobile
- Zero 1
Although SingTel is still the main provider of telco service, MOAT of the company is in question. In additional, more people are moving from Prepaid Plan to Sim Only Plan, the earning of the company is further reduced.
According to Phil’s book Rule#1 investing, SingTel was having a “switching MOAT”, but this MOAT is severely weaken. Thus, it have to compete with reducing price in their mobile plans.
My Opinion: Partially Pass
SingTel have a final score of 4/10.
With a high dividend yield, and payout ratio of more than 100%, I will not invest in it. SingTel was a great company with a good MOAT in the past.
In 2017, SingTel sold NetLink Trust. A business which had a monopoly play in the industry, which in my opinion, is a very bad move.
In the recent years, more competitor 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.
|My SingTel’s Score Card|
|Debt to Equity Ratio||High (2)||0|
|Dividend Yield||Low (1)||1|
|Dividend payout ratio||Low (1)||0|
|EPS Growth Rate||Low (1)||0|
|High Return of Equity (ROE)||Low (1)||0|
|Acceptable Price-to-Book Ratio||High (2)||2|
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 on Risk Management
This translate to the following 3 metrics I have in 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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