Read a company's dividend history and say what steady growth, flat payouts and cuts each tell you.
Find the investor relations page of one SGX company you hold or know well and look for its list of past dividends.
Most companies listed on SGX keep a record like this on that page, and many of them go back a long way. A decade of payments tells you more about the business than the yield quoted for it today. One year's yield can't show you how the company makes its money, or what its board does when trading turns bad. Ten years usually includes at least one difficult stretch, so the record also shows you how the board acted under pressure.
Wei Ling's father has owned the same few SGX stocks for over twenty years. He seldom looks at prices, but each year he writes the dividends he was paid into a small notebook. When Wei Ling leafs through it, she notices three patterns. Some stocks paid a dividend that crept up in most years. One paid the same dividend for a decade. Another paid half as much in one year as the year before and never fully got back to its old level. Most people would sell that last one on sight. If she reads it carefully, the notebook tells her more about each business than any single year's yield, and each pattern needs its own check.
A company has only two ways to lift its dividend year after year. Its earnings go up, or it pays out a bigger share of those earnings, so its payout ratio goes up. Lesson 2.2, "Payout ratio tells you how much room is left", showed that the payout ratio cannot keep rising forever. So over long periods, steady growth in the dividend has to be paid for by growing earnings.
When earnings climb steadily for many years, two qualities are usually behind it. One is pricing power: the business can raise its prices, or hold them, without customers leaving, so inflation and higher costs don't eat into its margins. The other is discipline in management. A disciplined management pays out a sensible share of profit and puts the rest back into the business well enough for it to grow.
Start with dividends per share across a decade and check whether they went up in most years. If they did, pull earnings per share for the same years. If earnings rose roughly in step with the dividend, you have backed dividend growth. If the dividend rose much faster than earnings, the payout ratio has been creeping higher to fill the gap, and growth of that kind will run out.
A dividend that stays the same for ten years can point to two quite different situations. The payout ratio trend across those years shows you which one you have.
If the payout ratio has also stayed level, earnings have stayed level too. You own a steady business that isn't growing. That may suit some holders, as long as they accept that the same income will buy less as time goes on.
If the payout ratio keeps climbing, earnings are shrinking. The company is paying out a larger slice of a smaller profit to keep the dividend where it was. Boards often do this because shareholders dislike cuts. It buys time and does nothing to fix the business. If earnings keep falling, the payout ratio moves towards 100% and a cut becomes likely. A flat dividend together with a rising payout ratio is one of the earliest warning signs to watch for, and Module 3 comes back to it.
A cut on its own does not tell you whether the business is getting worse. Selling the moment you see a cut is right in some cases and a mistake in others.
Cuts from a declining business usually look alike: sales are falling, debt is rising, and the cut comes late, after years of a stretched payout. Other cuts are deliberate choices by the board. A board might reduce the dividend to repay debt before interest rates rise, or to fund an investment it expects to pay off. A regulator might also have required the company to hold more capital during a crisis.
When your list shows a cut, go back to the company's announcement from that time and write down the reason the board gave. Then follow the next 3 to 5 years and note whether earnings and the dividend recovered, stayed down or fell again. A cut followed by recovering earnings and a rebuilt dividend is very different from a cut followed by a second cut. For the stock in the notebook whose dividend halved, the reason given at the time and what happened afterwards matter more than the cut itself.
How money works lesson 4.1, "Inflation means the same dollar buys less each year", showed that a fixed sum buys less as the years pass. A dividend that never changes is a fixed sum.
Suppose your dividends come to S$1,000 a year and inflation is 3% a year (made-up figures). After ten years, that S$1,000 buys roughly what S$744 buys today. If the same dividend grows by 4% a year instead, it pays about S$1,480 a year after ten years. After 3% inflation, that S$1,480 still buys a bit more than S$1,000 did at the start. The rule of 72 from How money works lesson 2.3, "Estimate doubling time in your head with the rule of 72", gives a quick check: 72 / 4 is about 18 years for a dividend growing at 4% a year to double.
A high yield that never grows starts strong and slowly loses value in real terms, and a lower yield that keeps growing can overtake it. Lesson 8.1, "Start from the income you need, not the highest yield", builds this into your own income plan.
Collect the past dividends from the investor relations page, then check each year's figure against that year's annual report. Write down dividends per share for each year, using regular dividends only. Keep special dividends, which are one-off payouts, in a separate note. Mark every year as a rise, a freeze or a cut.
Beside each freeze or cut, write the reason the company gave when it happened. Take it from that year's results announcement or chairman's statement, not from a summary written later, because later summaries tend to tidy the story up.
In the activity you will build exactly that chart for one company, and the reasons you collect will tell you more than the line itself.
Chart ten years of dividends per share for one SGX company. Mark every rise, freeze and cut, and note the reason the company gave at the time.
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