Dividend Investing, Part Two- Are Blue Chips Solid Dividend Payers?

There is a foolhardy assumption that dividends paid by companies listed in the index are rock solid. This is not the case as I looked at a company that has experienced some sell-off in recent times; the biggest of them all, Singapore Telecoms (SingTel).

Data were taken from annual reports, from https://www.singtel.com/about-Us/investor-relations/annual-reports#

Somewhere in the early 2000s, dividend income from subsidiaries were moved from “Cashflow from Investing Activities” to “Cashflow from Operating Activities.” As such, data can be inaccurate. However, I suppose things cannot be too far off…

Year Ending	OCF	Capex	FCF	Dividends declared and paid	Percentage
2016	4647.7	1930	2717.7	2789.2	102.63%
2015	5170.7	2237.6	2933.1	2677.5	91.29%
2014	5350.3	2101.5	3248.8	2677.8	82.42%
2013	5817.5	2058.6	3758.9	2517.7	66.98%
2012	5710.4	2248.7	3461.7	4111.4	118.77%
2011	6043	2004.6	4038.4	2356.6	58.35%
2010	5328.8	1923	3405.8	2084	61.19%
2009	5163	1918.3	3244.7	1989.4	61.31%
2008	5453.7	1879	3574.7	3435.4	96.10%
2007	4584.7	1789.8	2794.9	1920.9	68.73%
2006	4485	1713.5	2771.5	1733.8	62.56%
2005	4489.6	1428.1	3061.5	915.2	29.89%
2004	4594.7	1300.2	3294.5	764.8	23.21%
2003	3771.1	1667.9	2103.2	764.7	36.36%
2002	3088.1	2999.7	88.4	697.4	788.91%
2001	3533.5	1762	1771.5	1493.8	84.32%

There were a couple of years which should be disregarded. Year ending on 2002 should be disregarded due to the purchase of Optus. 2012 should be disregarded as there was a huge one-time special dividend payout.

Let’s remove them.

Year Ending	OCF	Capex	FCF	Dividends declared and paid	Percentage
2016	4647.7	1930	2717.7	2789.2	102.63%
2015	5170.7	2237.6	2933.1	2677.5	91.29%
2014	5350.3	2101.5	3248.8	2677.8	82.42%
2013	5817.5	2058.6	3758.9	2517.7	66.98%
2011	6043	2004.6	4038.4	2356.6	58.35%
2010	5328.8	1923	3405.8	2084	61.19%
2009	5163	1918.3	3244.7	1989.4	61.31%
2008	5453.7	1879	3574.7	3435.4	96.10%
2007	4584.7	1789.8	2794.9	1920.9	68.73%
2006	4485	1713.5	2771.5	1733.8	62.56%
2005	4489.6	1428.1	3061.5	915.2	29.89%
2004	4594.7	1300.2	3294.5	764.8	23.21%
2003	3771.1	1667.9	2103.2	764.7	36.36%
2001	3533.5	1762	1771.5	1493.8	84.32%
			42719.2	28120.8	65.83%

One could see that based on 15 years of data, the average dividend payout is 65.83%.

SingTel was able to pay dividends effortlessly from 2001-2005. A check at the yield then was about 1-2%, which is low. Payout from FCF increases dramatically from 2006, as its yield increases.

Year Ending	OCF	Capex	FCF	Dividends declared and paid	Percentage
2016	4647.7	1930	2717.7	2789.2	102.63%
2015	5170.7	2237.6	2933.1	2677.5	91.29%
2014	5350.3	2101.5	3248.8	2677.8	82.42%
2013	5817.5	2058.6	3758.9	2517.7	66.98%
2011	6043	2004.6	4038.4	2356.6	58.35%
2010	5328.8	1923	3405.8	2084	61.19%
2009	5163	1918.3	3244.7	1989.4	61.31%
2008	5453.7	1879	3574.7	3435.4	96.10%
2007	4584.7	1789.8	2794.9	1920.9	68.73%
2006	4485	1713.5	2771.5	1733.8	62.56%
		Total	32488.5	24182.3	74.43%

The last 3 years has been tough for SingTel.

Year Ending	OCF	Capex	FCF	Dividends declared and paid	Percentage
2016	4647.7	1930	2717.7	2789.2	102.63%
2015	5170.7	2237.6	2933.1	2677.5	91.29%
2014	5350.3	2101.5	3248.8	2677.8	82.42%
		Total	8899.6	8144.5	91.52%

From the prospective of a dividend hunter, I wouldn’t say this business is one in which you buy and sleep on it, since share prices are not that depressed (EV/EBIDTA is still way higher than the other telecommunication companies). I can say with some confidence that current year’s (2017) dividend is UNLIKELY to be cut based purely from this year’s FCF and CAPEX, but the short future seems very rough.

2017	OCF	CAPEX	FREE CASHFLOW	DIVIDEND PAID	REMARKS
Q1	1736.8	504.5	1232.3	-
Q2	1121	479.7	641.3	1705.5	Already paid earlier this year
Q3	1263.3	623.6	639.7	-
Last Year's Q4	1208.3	527	681.3	1083.7 (Figure to match last year's total dividend payout)
Total	5329.4	2134.8	3194.6	2789.2	87.31%

Total dividend paid last year was 2789.2
Dividends paid so far (SingTel pays twice a year): 1705.5
Assuming dividends this year will equal last year's, next dividend should be 2789.2 - 1705.5= 1083.7

This will probably mean using up to 87.31% of the estimated free cash flow, provided this coming quarter’s performance matches last year’s. As a large company with multiple sources of revenue, I don’t expect any earnings surprises. 

As such, this is the average payout, for the last 4 years.

Year Ending	OCF	Capex	FCF	Dividends declared and paid	Percentage
2017	5329.4	2134.8	3194.6	2789.2	87.31%
2016	4647.7	1930	2717.7	2789.2	102.63%
2015	5170.7	2237.6	2933.1	2677.5	91.29%
2014	5350.3	2101.5	3248.8	2677.8	82.42%
		Total	12094.2	10933.7	90.40%

Hence, if the management were to cut dividends or offer a dividend guidance, it will mean that the short future does look bleak.

The key takeaway is that dividend payout percentage from the Income Statement does not adequately express the difficulty of paying dividends.

Update
SingTel announced its 4th quarter and Full Year result recently. These are the updated figures.

2017	OCF	CAPEX	FREE CASHFLOW	DIVIDEND PAID	REMARKS
Q1	1736.8	504.5	1232.3	-
Q2	1121	479.7	641.3	1705.5	Already paid earlier this year
Q3	1263.3	623.6	639.7	-
Q4	1416.3	652.8	763.5	1110	Announced 18-May
Total	5537.4	2260.6	3276.8	2815.5	85.92%

 

Year Ending	OCF	Capex	FCF	Dividends declared and paid	Percentage
2017	5537.4	2260.6	3276.8	2815.5	85.92%
2016	4647.7	1930	2717.7	2789.2	102.63%
2015	5170.7	2237.6	2933.1	2677.5	91.29%
2014	5350.3	2101.5	3248.8	2677.8	82.42%
		Total	12176.4	10960	90.01%