Singtel, commonly known as Singtel, is a major telecom operator focused on reinventing its business around digital infrastructure. In contrast, ST Engineering, or ST Engineering, is a diversified aerospace-and-defence conglomerate capitalising on long-term global growth trends.

Both companies offer consistent dividend payouts. However, for an investor with a decade-long horizon, the critical factor is not the current yield but the sustainable growth of earnings, cash flow, and dividends over an extended period.

Assessing Singtel as a Long-Term Dividend Prospect

Singtel's portfolio consists of its core telecom operations in Singapore and Australia (via Optus) alongside strategic stakes in various regional telecom partners. The company also operates a growing digital division that includes IT services (NCS) and data centre solutions (Nxera).

A significant driver of Singtel's future expansion is expected to be the increased dividend inflows from its regional associates, which can have a substantial impact on its overall earnings and cash flow. The NCS and Nxera businesses are capitalising on robust demand for cloud services and artificial intelligence, likely boosting both revenue and profitability.

Furthermore, management's ongoing strategy of selling non-core assets is freeing up capital, which is being used to reduce debt, finance expansion within NCS and Nxera, and maintain shareholder returns.

Examining ST Engineering as a Long-Term Dividend Prospect

ST Engineering operates through three primary business segments: commercial aerospace (CA), defence and public security (DPS), and urban/smart-city solutions. The company's main growth catalysts are expected to come from the CA and DPS divisions.

The CA segment benefits from the increasing volume of global air travel and cargo, along with an ageing aircraft fleet that requires more frequent maintenance. Meanwhile, the DPS segment is supported by rising defence budgets across various nations, often secured through long-term, recurring revenue contracts.

The urban/smart-city solutions arm is positioned to benefit from digitalisation trends, although its current contribution to overall earnings is still limited.

Comparing Dividend Payouts

With shares trading around S$4.49 and a declared annual dividend of S$0.185 per share (which includes S$0.051 from asset disposals) for the fiscal year ending 31 March 2026 (FY2026), Singtel offers a trailing yield of approximately 4.1%.

In comparison, ST Engineering's share price is near S$10.50, and its trailing dividend of S$0.24 per share translates to a yield of about 2.3%. While ST Engineering's yield is lower than Singtel's, its dividend growth rate is considerably faster. The company's most recent interim dividend of S$0.05 per share for the second quarter of 2026 represents a 25% increase year-on-year.

Since 2017, Singtel's total dividend has grown by a modest 6%, whereas ST Engineering's has grown by 53%. For a long-term investor, a higher current yield does not automatically make Singtel the better choice; the yield on cost, or the effective yield based on the original investment price, is more critical than the initial yield. If ST Engineering continues its current pace of dividend increases, a new buyer today could see a materially higher effective yield on their initial capital within five years.

Evaluating the Dividend Engine Through Free Cash Flow

The sustainability of a dividend depends on cash generation, not accounting profits. In FY2026, Singtel reported operating cash flow (OCF) of S$4.9 billion, which included S$1.2 billion in dividends from associates. After deducting S$2.4 billion in capital expenditure, the company's free cash flow (FCF) stood at S$2.5 billion, which was insufficient to cover the S$2.9 billion in dividends paid out. This shortfall was financed by S$3.9 billion in proceeds from asset sales.

ST Engineering's financials for the first half of 2026 (ending 30 June 2026) present a more robust picture. Its OCF was S$959.8 million, with capital expenditure of S$368 million, resulting in FCF of S$591.8 million. This comfortably covered its dividend payments of S$470 million, and its FCF represented a cash conversion ratio of approximately 156% relative to net profit.

The key question is whether each company can fund its dividends from recurring cash flow while still investing for growth. Singtel falls short, relying on capital recycling initiatives. ST Engineering, however, funds its dividend organically and retains significant headroom for additional investments.

Assessing Earnings Growth and Compounding Potential

Singtel reported real underlying earnings growth of 27% for the quarter ended 30 June 2026 (1QFY2027), excluding currency movements. However, a substantial portion of its reported profit came from one-off gains on stake sales rather than recurring operations. Its organic growth rate stands at a more moderate 21%.

ST Engineering's growth appears more sustainable and repeatable. Both its CA and DPS segments achieved double-digit growth in earnings before interest and taxes (EBIT). Additionally, its order book has reached a record high of S$35.7 billion as of 30 June 2026, providing multi-year revenue visibility and reducing uncertainty about future order flow.

Comparing Balance Sheet Strength

Singtel has been actively reducing its leverage. Its net debt to EBITDA ratio has improved from 1.5 to 1.3 over the past year, aided by asset sales. This provides the company with financial flexibility for further investments or enhanced shareholder returns.

ST Engineering carries a higher degree of leverage, with S$4.7 billion in borrowings against only S$293 million in cash. Despite this, its interest coverage ratio (ICR) remains healthy at around 9 times. The more leveraged balance sheet could potentially constrain ST Engineering's dividend growth if interest rates stay high or if the company undertakes a significant acquisition.

Which Dividend Payout Is More Sustainable?

A sustainable dividend must pass four key tests. First, regarding the payout ratio, Singtel's core payout is at 80% of underlying earnings, while ST Engineering's payout is lower, leaving more room for growth. Second, on the FCF payout test, Singtel's dividend exceeds its FCF and is dependent on divestment proceeds, whereas ST Engineering's dividend is well covered by its FCF. Third, in terms of balance sheet resilience, Singtel is deleveraging while ST Engineering has thinner financial headroom. Fourth, on reinvestment, Singtel's heavy capital expenditure funds its growth initiatives, and ST Engineering continuously reinvests to enhance its capabilities and make bolt-on acquisitions.

Overall, Singtel's dividend appears less sustainable due to its dependence on asset sales, whereas ST Engineering's payout is more fundamentally sound.

Weighing Growth Potential Against Income Needs

Singtel's primary strengths are its attractive dividend yield, extensive regional telecom exposure, potential for growth from digital infrastructure, and the benefits of continued asset monetisation. Conversely, its key weaknesses include operating in a mature and competitive industry, high capital intensity, and earnings that depend on associates it does not fully control.

ST Engineering's strengths are its exposure to structural growth trends in aerospace and defence, a diversified business model, and a strong order book that provides excellent revenue visibility. Its main weaknesses are a higher valuation, potential execution risks, and dependence on government spending cycles.

Current Valuation Assessment

ST Engineering trades at approximately 30 times forward earnings, a valuation that already factors in several years of flawless execution. Singtel, trading at roughly 21 times forward earnings and offering a 4.1% yield, appears cheaper on paper. The central question is whether Singtel's higher yield sufficiently compensates for its slower growth trajectory. Neither stock is notably cheap compared to its historical valuation range.

Holding Both for Diversification?

It is entirely feasible to hold both stocks in a portfolio. They offer distinct and complementary exposures: Singtel provides access to telecoms, associate investments, and digital infrastructure, while ST Engineering offers exposure to aerospace, defence, and technology. Owning both can help diversify an income-focused portfolio across different industries and economic cycles, depending on one's overall allocation to Singapore equities.

Investors should monitor certain pivotal factors for each thesis. For Singtel, watch its associate earnings, core telecom performance, progress in digital infrastructure, pace of capital recycling, net debt levels, and dividend policy. For ST Engineering, follow its order book, aerospace margins, defence contract wins, free cash flow generation, and any large acquisitions that could alter its leverage.

Beyond the Yield: Finding the Smart Investment

Singtel and ST Engineering present two fundamentally different approaches to long-term dividend investing. Singtel is suited for investors seeking higher near-term income and a stake in a regional telecom and digital infrastructure turnaround. ST Engineering appeals to those who are willing to accept a lower current yield for potentially faster future dividend compounding, based on structural growth in aerospace, defence, and technology.

The superior 10-year investment will come down to which business can better sustain its dividend growth, grow its earnings, and deliver on its valuation. The focus should be on identifying the company with the strongest potential for increasing its payout over time, rather than simply choosing the one with the highest immediate yield.