Singtel’s dividend cash outflows expected to ‘more than halve’ in 2021

• Singtel continues to be one of the most actively traded stocks on the Singapore Exchange, two weeks after its digital full bank licence win
• Last week, the telco saw its credit outlook get reduced from ‘stable’ to ‘negative’ by S&P Global Ratings
• The agency said that Singtel’s performance was ‘hit harder’ than expected
• It forecasts that dividend cash outflows will more than halve to about S$1.3 billion in FY2021 from S$2.86 billion in FY2020

Singtel share price: What’s the latest?

Singtel was one of the top three most active counters on the Singapore Exchange on Thursday (17 December 2020), experiencing a trade volume of over 12 million by mid-day.

As at 14:00 SGT, Singtel shares are trading at S$2.35 apiece.

Singtel’s credit rating fall to ‘negative’?

Last Tuesday (08 December), US credit rating agency S&P Global Ratings lowered its credit outlook for the group from ‘stable’ to ‘negative’, so as to ‘reflect the company’s deteriorating leverage’.

The agency said in a press release that the group has been ‘hit harder than we expected by the Covid-19 pandemic and weakened economic conditions’. It added that Singtel’s performance was hit with a larger decline than its regional peers.

That’s because Singapore and Australia (its two main markets) are more mature markets with limited growth potential. Structural decline in its business, including strong competition within Singapore and Australia, also impacted performance.

Moreover, earnings in Singtel’s Australia subsidiary Optus have also been impacted by the implementation of the National Broadband Network in Australia.

S&P Global projects that Singtel’s adjusted EBITDA will decline by 11%-13% in fiscal 2021 and remain below pre-Covid levels in fiscal 2022, with government support schemes expected to ‘taper off’ in the second half of FY2021.

As such, they noted that Singtel’s recovery will be more uncertain than other telcos, stating that ‘a significant improvement in Singtel’s performance depends, to a large extent, on the return of some normalcy in operating conditions’.

What’s the impact on dividends?

In terms of dividend payouts, S&P Global wrote that ‘continuing competition and a need to maintain high capital outlay to deploy advanced networks could constrain the ability of Singtel’s regional associates to pay more dividends to the parent’.

As such, they anticipate that Singtel’s cash dividends from associates will be S$1.4 billion annually in fiscal 2021 and 2022, largely flat from fiscal 2020.

The group also announced a reduction in its final dividend shareholders in May 2020, and again in November 2020 with interim payouts - applying a scrip dividend scheme to both rounds.

Consequently, the agency forecasts that cash outflows from dividends will more than halve to about S$1.3 billion in fiscal 2021 from S$2.86 billion in fiscal 2020.

In response, Singtel said: ‘Singtel and Optus' credit ratings are strong and we remain financially disciplined and committed to maintaining our investment-grade credit ratings.’

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