Singapore Airlines Limited (SGX:C6L) will increase its dividend from last year's comparable payment on the 21st of August to SGD0.38. This makes the dividend yield 6.8%, which is above the industry average.

Check out our latest analysis for Singapore Airlines

Singapore Airlines' Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last payment made up 76% of earnings, but cash flows were much higher. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Looking forward, earnings per share is forecast to fall by 27.9% over the next year. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 89%, meaning that most of the company's earnings are being paid out to shareholders.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was SGD0.27 in 2014, and the most recent fiscal year payment was SGD0.48. This implies that the company grew its distributions at a yearly rate of about 5.9% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Has Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Singapore Airlines has seen EPS rising for the last five years, at 5.4% per annum. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Singapore Airlines' payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.

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 example, we've identified 2 warning signs for Singapore Airlines (1 shouldn't be ignored!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.