The board of Singapore Exchange Limited (SGX:S68) has announced that it will be paying its dividend of SGD0.085 on the 20th of October, an increased payment from last year's comparable dividend. Based on this payment, the dividend yield for the company will be 3.6%, which is fairly typical for the industry.

See 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. Singapore Exchange was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.

Over the next year, EPS is forecast to fall by 1.7%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 63%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Singapore Exchange Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2013, the dividend has gone from SGD0.28 total annually to SGD0.34. This works out to be a compound annual growth rate (CAGR) of approximately 2.0% a year over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Singapore Exchange Could Grow Its Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Singapore Exchange has impressed us by growing EPS 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.

Our Thoughts On Singapore Exchange's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. 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. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Singapore Exchange that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield 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.