The advice of Singapore Technologies Engineering Ltd (SGX:S63) announced that it will pay a dividend of $0.10 per share on May 10. The dividend yield will be 4.0% based on this payout, which is still above the industry average.

Check out our latest analysis for Singapore Technologies Engineering

Singapore Technologies Engineering’s dividend is well covered by earnings

A big dividend yield for a few years doesn’t mean much if it can’t be sustained. Prior to this announcement, Singapore Technologies Engineering paid out 82% of earnings, but a relatively low 73% of free cash flow. In general, cash flow is more important than earnings, so we are confident that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

EPS is expected to grow 3.1% over the next year. If recent dividend trends continue, the 12-month payout rate could be 85%, which is a bit high but can certainly be sustainable.

Dividend volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the past 10 years. Since 2012, the dividend has increased from S$0.15 to S$0.16. Dividend payouts increased by less than 1% per year during this period. It’s encouraging to see some dividend growth, but the dividend has been cut at least once, and the magnitude of the cut would eliminate most of the growth anyway, making it less attractive as a income investment.

Dividend growth can be hard to achieve

With a relatively volatile dividend, it is even more important to assess whether earnings per share are increasing, which could indicate dividend growth in the future. Revenues have grown 3.3% annually over the past five years, which admittedly is a little slow. Slow growth and a high payout ratio could mean that Singapore Technologies Engineering has maxed out the amount it was able to pay out to shareholders. When a company prefers to pay money back to its shareholders instead of reinvesting it, it can often say a lot about that company’s dividend prospects.

Our thoughts on the Singapore Technologies Engineering dividend

Overall, we don’t think this company is generating a great dividend, even though the dividend hasn’t been cut this year. In the past, payouts have been volatile, but in the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

Market movements testify to the valuation of a consistent dividend policy over a more unpredictable one. Yet investors must consider a host of other factors, aside from dividend payments, when analyzing a company. For example, we chose 2 warning signs for Singapore Technologies Engineering that investors should be aware of before committing capital to this security. If you are a dividend investor, you can also consult our curated list of high yielding dividend stocks.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.