Singtel's interim dividend was raised in the first half of its fiscal year 2024. We find out if there might be more upside to its dividends.
What happened?
Recently, we shared about Singapore blue chip stocks paying out consistent dividends.
Some investors then asked what were the prospects like for Singtel. After all, Singtel was known to be name that paid out consistent dividends in the past.
This was until the Covid-19 pandemic significantly impacted its profitability and dividend payout.
More recently, Singtel had a lacklustre year in 2023 that saw its share price dip by 3.1% to close at S$2.47. Its share price has fallen further this year to reach $2.39 as of 24 January 2024.
Despite the weakness in its share price, Singtel has started to see some improvement to its profitability.
Its recent fiscal 2024’s first half (1H FY2024) saw the group’s underlying net profit rise 11.6% year on year to S$1.1 billion.
The interim dividend was also raised by 13% year on year to S$0.052.
Singtel has also unveiled a new corporate strategy that could see growth accelerating in the future.
We recently spoke to Arthur Lang, the Chief Financial Officer of Singtel at a Corporate Connect webinar hosted by SIAS.
We find out more about Singtel's prospects, and what they may mean for the company's dividends in the coming years.
Can Singtel's dividends grow further?
#1 – Growth engines
At its Investor Day 2023 held in August last year, Singtel identified several tailwinds that the telco could leverage for faster growth.
Its core mobile business is seeing a post-COVID-19 recovery but two aspects are worth looking deeper into – NCS (Singtel’s business-to-business segment), and its regional data centre portfolio.
These two divisions are seeing increased demand for digitalisation services with the adoption of artificial intelligence (AI).
NCS holds the top spot for IT services in Singapore and Southeast Asia with a headcount of 12,000 staff with an involvement in more than 4,000 projects.
The division sees three growth opportunities as it rides the post-pandemic wave of digitalisation across the Asia-Pacific region.
The first is to target client industries by reinventing public sector businesses and expediting enterprise business.
The second involves offering end-to-end capabilities with its Core and NEXT platforms.
Finally, NCS intends to double down on its Singapore business while expanding beyond the island.
The Asia-Pacific IT services market size is expected to be substantial and forecasted to grow at 13% per annum from 2023 to 2027 to reach US$50 billion.
Over at Singtel’s digital infrastructure division, robust growth is projected for the Southeast Asian data centre market at more than 20% per annum, driven by broad-based digitalisation needs.
The telco aims to build a regional green data centre platform and to be the leading green and sustainable data centre service provider with the best interconnectivity in the Southeast Asian region.
For its current 62 MW of data centres, the utilisation rate stood high at 99% and Singtel’s portfolio comprised a balanced mix of hyperscalers and enterprises for the division’s revenue mix.
The division also has a promising expansion pipeline of 58 MW in Singapore along with 37 MW in the region that are under construction.
#2 – Capital recycling strategy
Aside from the above two growth drivers, Singtel is also actively recycling capital to unlock value for shareholders.
For both fiscal 2022 and 2023, around S$5 billion of assets were recycled.
In the mid-term, Singtel expects to recycle a total of S$6 billion.
Approximately S$2 billion has already been raised from the sale of cybersecurity outfit Trustwave (at an enterprise value of US$205 million) and the taking up of a 20% stake in the group’s regional data centre (RDC) business by KKR for S$1.1 billion.
Non-core assets such as Airtel Africa and Thaicom, along with loss-making Amobee, were also divested.
Another S$4 billion of assets will be unlocked and the proceeds from the capital recycling diverted to investments in 5G, NCS, and RDC.
Singtel also plans to reduce its gearing and may consider additional shareholder payouts with the funds raised.
The telco has strengthened its balance sheet since March 2021.
Net debt was reduced from S$12 billion to S$9 billion as of 30 September 2023 while interest cover has gone from 14.3 times to 19.3 times over the same period.
Singtel’s fixed rate debt increased from 81% to 90%, helping the group to mitigate the impact of the surge in interest rates over the last year and a half.
With these planned investments, capital recycling and growth initiatives, Singtel is targeting a low double-digit return on invested capital by fiscal 2026, up from the current 8% for fiscal 2023.
#3 – Revised dividend policy
Income-seeking investors should perk up at the news of Singtel’s revised dividend policy.
The telco has revised its dividend policy to be between 70% to 90% of underlying net profit, up from the previous range of 60% to 80%.
This increase is supported by steadily rising underlying net profit over the years, with this metric rising from S$1.7 billion in fiscal 2021 to S$2.1 billion in fiscal 2023.
Shareholders also received a bonanza in fiscal 2023 when the telco paid out a special dividend of S$0.05 from asset recycling proceeds, taking that fiscal year’s total dividend to S$0.149, up 60% year on year.
What would Beansprout do?
Singtel seems to be on the path to better core profitability as it harnesses the power of digitalisation to grow its NCS and RDC divisions.
However, these are long-term initiatives that may not bear fruit immediately as they require a gestation period.
We would monitor the progress of Singtel’s Investor Day objectives to ensure that the telco is on track to achieve its goals.
In the meantime, we would also be watchful of risks relating to potential liabilities from the recent outage in Australia, as well as weakness in regional currencies against the Singapore dollar.
According to consensus forecasts, the share price target for Singtel is S$3.05 as of 18 January 2024, 28% above its current share price of S$2.39.
Singtel paid out an interim dividend of 4.6 cents, final dividend of 5.3 cents and special dividend of 5.0 cents in fiscal year 2023.
Its interim dividend was increased to 5.2 cents in fiscal year 2024. Based on the average forecasts of analysts, the total dividend is expected to be 11.0 cents in fiscal year 2024.
This would imply a potential final ordinary dividend of 5.8 cents, a further increase from fiscal year 2023.
Based on the expected total dividend per share of 11.0 cents, Singtel offers a dividend yield of 4.6%. This is inline with its historical average.
Related links:
- Singtel share price and analysis
- Singtel dividend history
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As a seasoned financial analyst with a background in telecommunications and a deep understanding of the intricacies of corporate financial strategies, I can provide valuable insights into Singtel's recent developments and its potential for dividend growth. My extensive experience in analyzing market trends, financial statements, and corporate strategies allows me to decipher the nuances in the information provided.
Singtel's fiscal year 2024 first-half results reveal a promising turnaround in profitability, with an 11.6% year-on-year increase in underlying net profit to S$1.1 billion. The 13% year-on-year increase in the interim dividend to S$0.052 is a positive sign of the company's financial health. Additionally, Singtel's new corporate strategy, discussed by Chief Financial Officer Arthur Lang, signals potential growth avenues.
Let's delve into the key concepts highlighted in the article:
1. Growth Engines:
- Singtel identifies NCS (business-to-business segment) and its regional data center portfolio as growth drivers.
- NCS, a leader in IT services, aims to capitalize on the post-pandemic wave of digitalization in the Asia-Pacific region.
- The Asia-Pacific IT services market is expected to grow at 13% per annum from 2023 to 2027.
- Singtel plans to build a regional green data center platform with robust growth projected in the Southeast Asian data center market.
2. Capital Recycling Strategy:
- Singtel actively recycles capital to unlock value for shareholders.
- Around S$5 billion of assets were recycled in fiscal 2022 and 2023.
- Singtel plans to recycle a total of S$6 billion in the mid-term.
- The company has already raised S$2 billion from the sale of Trustwave and a stake in the regional data center business.
- Capital recycling proceeds will be directed towards investments in 5G, NCS, and regional data centers.
3. Revised Dividend Policy:
- Singtel revises its dividend policy to distribute between 70% to 90% of underlying net profit, up from the previous range of 60% to 80%.
- This change is supported by a steadily rising underlying net profit, reaching S$2.1 billion in fiscal 2023.
- In fiscal 2023, Singtel paid a special dividend of S$0.05, resulting in a total dividend increase of 60% year on year.
Conclusion:
- Singtel appears to be on a path to improved core profitability through digitalization initiatives in NCS and regional data centers.
- The company's capital recycling strategy and prudent financial management contribute to a strengthened balance sheet.
- The revised dividend policy, supported by rising profits, indicates a positive outlook for dividend growth.
- Investors should monitor the progress of Singtel's long-term objectives and be cautious of potential risks such as recent outages in Australia and currency weaknesses in the region.
As we assess Singtel's potential, it's important to stay informed about the company's ongoing initiatives and external factors that may impact its performance.
