Singapore Exchange Limited (SGX:S68) has announced that it will be increasing its dividend from last year’s comparable payment on the 20th of October to SGD0.085. The payment will take the dividend yield to 3.4%, which is in line with the average for the industry.

View our latest analysis for Singapore Exchange

Singapore Exchange’s Earnings Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Singapore Exchange was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 93% indicates it is more focused on returning cash to shareholders than growing the business.

Over the next year, EPS is forecast to fall by 2.1%. If the dividend continues along recent trends, we estimate the payout ratio could be 63%, which we consider to be quite comfortable, with most of the company’s earnings left over to grow the business in the future.

Singapore Exchange Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was SGD0.28 in 2013, and the most recent fiscal year payment was SGD0.34. This works out to be a compound annual growth rate (CAGR) of approximately 2.0% a year over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

Singapore Exchange Could Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company’s stock based on its dividend history. We are encouraged to see that Singapore Exchange has grown earnings per share at 9.5% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

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In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. However, lack of cash flows makes us wary of the potential for cuts in the dividend’s future, even though the dividend is generally looking okay. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we’ve picked out 1 warning sign for Singapore Exchange that investors should take into consideration. Is Singapore Exchange not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.