SingTel: Borrowing to pay higher dividend
Shareholders will not be complaining that they can continue to milk the cash cow SingTel for dividends. Particularly during the uncertain and directionless market, when capital gains are no longer a sure thing, good dividend payers are very welcome. But a look through the Cashflow statement indicates that despite the billion dollar revenues and cashflows, SingTel could only afford to raise its dividend because it borrowed more money.
It's not rocket science:
The business generated S$5.45 bln in cash (Net Cash inflow from operating activities).
SingTel invested S$2.75 bln in associate companies, plant and equipment.
It also paid out dividends during the year of S$3,435.4 bln, compared to S$1.92 bln last year. The difference: S$1.515 bln.
How did it pay for this increase, even as it repaid loans worth S$3.75 bln?
Well, it borrowed S$4.93 bln in fresh funds, which means on balance it took out new loans worth S$1.67 bln.
Next question: is there necessarily anything wrong with borrowing to pay dividends?
Probably not. It's not uncommon, in other countries, too.
The reason companies do it is to maintain confidence in their shares. There's little that scares people away more, particularly during the uncertain and directionless markets I already mentioned, than a cut in the dividend.
But shareholders would be wise to pay attention to the cashflow statement to ensure that dividends aren't artificially propped up by loans even as sales are falling and the business is failing. That doesn't seem to be the case with SingTel, which generated sales worth more than S$14.8 bln! But few if any other companies can boast of similar revenue profiles.
Cash is king.
Mark Laudi, who doesn't own any SingTel shares, but sometimes wishes he did.
To comment on this blog, go to the Investor Central blog.
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ArchivesShareholders will not be complaining that they can continue to milk the cash cow SingTel for dividends. Particularly during the uncertain and directionless market, when capital gains are no longer a sure thing, good dividend payers are very welcome. But a look through the Cashflow statement indicates that despite the billion dollar revenues and cashflows, SingTel could only afford to raise its dividend because it borrowed more money.
It's not rocket science:
The business generated S$5.45 bln in cash (Net Cash inflow from operating activities).
SingTel invested S$2.75 bln in associate companies, plant and equipment.
It also paid out dividends during the year of S$3,435.4 bln, compared to S$1.92 bln last year. The difference: S$1.515 bln.
How did it pay for this increase, even as it repaid loans worth S$3.75 bln?
Well, it borrowed S$4.93 bln in fresh funds, which means on balance it took out new loans worth S$1.67 bln.
Next question: is there necessarily anything wrong with borrowing to pay dividends?
Probably not. It's not uncommon, in other countries, too.
The reason companies do it is to maintain confidence in their shares. There's little that scares people away more, particularly during the uncertain and directionless markets I already mentioned, than a cut in the dividend.
But shareholders would be wise to pay attention to the cashflow statement to ensure that dividends aren't artificially propped up by loans even as sales are falling and the business is failing. That doesn't seem to be the case with SingTel, which generated sales worth more than S$14.8 bln! But few if any other companies can boast of similar revenue profiles.
Cash is king.
Mark Laudi, who doesn't own any SingTel shares, but sometimes wishes he did.
To comment on this blog, go to the Investor Central blog.
Visit the brand new Investor Central website! for FREE SMS alerts to news about stocks in your watchlist
Labels: dividends, Singapore Telecom, SingTel
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