The telcos in Singapore namely SingTel, M1 and StarHub were fairly good dividend stocks for many years but are they still good dividend stocks? I wrote about StarHub in a few articles and cautioned to closely monitor whether the dividend pay-outs were sustainable before any investment was made. M1 has been de-listed from the stock exchange.
As a consumer, we are now spoilt for choice when looking for a mobile plan. Besides the 4 mainstream telcos SingTel, M1, StarHub and TPG, you have the Mobile Virtual Network Operators (MVNOs) Circles.life, Zero, Zero1 and MyRepublic. SingTel has separately launched a digital mobile unit called Gomo, I guess to offer the cheaper plans with lesser support infrastructure and to differentiate from the parent brand offers.
The mobile space is definitely crowded with competition and while you can be better in several dimensions such as service level, network coverage, pricing etc, it is really a commoditized offering where pricing is a key element. I recently just renewed two mobile lines and for pretty much the same plan, I am now paying $20 per month for each line as compared to about $70 before. There is certainly tremendous price erosion and I think the price war can get even more cut-throat.
Home broadband market is just as competitive. For paid TV, the picture is not pretty as well, fewer people are watching TV the old way and instead consume entertainment through streaming video like Netflix, YouTube and many other online platforms. As a consumer, I have also just terminated the cable TV subscription.
Since M1 is no longer on SGX, let’s examine the revenue and EPS trends of SingTel and StarHub.
Both are not growing top-line revenue very much. StarHub’s EPS has been declining for a number of years while SingTel’s EPS has been stable but suffered a drop last year because of stiff competition in India, lower contribution from regional associate companies and a stronger SGD dollar.
For dividend stocks, to monitor whether the dividend pay-out is sustainable, it is also important to track the corresponding Free Cash Flow (FCF).
StarHub aims to pay a dividend of $0.09 per share per annum and higher if performance comes in better. SingTel has been paying $0.175 per share and its FCF is still strong. At current price of about $1.47 for StarHub, dividend yield is about 6.12%. I would personally want to ensure some form of market pricing stability and both EPS and FCF can sustain the dividend pay-out before I would get interested.
SingTel is much less dependent on the Singapore market and it has also been diversifying with many other revenue streams. The biggest concern I have is its associate’s performance in India which is dragging down the financial performance. I am currently vested and I will hold as dividend payout still meets my return expectation (5% plus). Dividend pay-out is currently sustainable but I would really want to see some improvement in financial performance over the next quarters.
I usually prefer stocks which continue to grow the revenue year-on-year, then they have a sustainable way to grow the earnings and thus increase in share price over the long term. Do not blindly chase after dividend yield, watch out for warning signs.
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