Most investors consider mature, slow-growing companies to be those that pay out a large portion of their earnings as dividends. But that can be a misleading – albeit mostly true – generalisation. I previously shared three shares that have been growing their earnings per share (EPS) at double-digit growth rates and yet dole out a significant chunk of those earnings to shareholders as dividends. The beauty of these shares is that investors can benefit from both capital gains – as the shares rise in price along with EPS growth – as well as rising dividends. Let’s take a look at…
I previously shared three shares that have been growing their earnings per share (EPS) at double-digit growth rates and yet dole out a significant chunk of those earnings to shareholders as dividends.
The beauty of these shares is that investors can benefit from both capital gains – as the shares rise in price along with EPS growth – as well as rising dividends.
Let’s take a look at three shares that have grown their EPS by more than 15% per year for the past five years and yet sport dividend pay-out ratios of more than 40%
1. ARA Asset Management (SGX: D1R) – Price: $1.85; Trailing Price-Earnings (PE) Ratio: 22.5; Trailing Dividend Yield: 2.5%
Since the company’s debut on the Mainboard Exchange on November 2007, its assets under management (AUM) have doubled from S$11.5b in 2008 to S$22.7b as of March 2013. That has been good news for shareholders as part of ARA’s revenue stream stems from the gross property values of the various REITs and funds it manages, which tends to increase in tandem with AUM.
ARA’s EPS has increased by more than 18.6% annually from 2008 to 2012 while dividends have grown by 10.6% per year. The company does not have a fixed dividend policy, but as part of its capital management policy, the Board of Directors “monitors the level of dividends to ordinary shareholders” in addition to “monitor[ing] the return on capital” of the business.
In any case, ARA’s dividend pay-out ratio has never dipped below 50% over the past five years, as seen in the chart below.
2. Japan Foods Holding (SGX: 5OI) – Price: $0.71; Trailing PE: 12.8; Trailing Dividend Yield: 3.5%
Japan Foods is a food & beverage outlet operator specialising in restaurants serving Japanese ramen and other types of Japanese cuisine. Its main revenue driver comes from the Ajisen Ramen brand of ramen restaurants that it licenses from the Shigemitsu Industry in Japan. Ajisen accounted for more than half of Japan Foods’ revenue last year.
The company’s shares have jumped by more than 325% since its initial-public offering on Feb 2009 at S$0.167 per share on the back of its strong underlying corporate performance.
Over the last five completed financial years (from 31 March 2009 to 31 March 2013), the company’s revenue has almost doubled from S$33.5m to S$61.3m. Meanwhile, EPS has grown 16% compounded, with dividend growth clocking in at an astounding 96% increase per year.
The company’s dividend pay-out ratio has increased over the years from 5.6% to 45% as seen in the chart below. Prior to 31 March 2013, Japan Foods did not have a dividend policy but it has since enacted a new policy of maintaining a pay-out ratio of at least 35% for subsequent years.
That means shareholders can share in the spoils of the company’s future growth directly through bigger dividends.
3. Jardine Cycle & Carriage (SGX: C07) – Price: S$40.70; Trailing PE: 12.3; Trailing Dividend Yield: 3.7%
Jardine Cycle & Carriage owns just over 50% of Astra, which is an Indonesia conglomerate. According to Jardine C&C’s annual report, Astra is the largest independent automotive group in South-East Asia and has interests in financial services, heavy equipment and mining, agriculture, infrastructure and logistics, and information technologies.
Looking at the whole list of Astra’s business activities, it is fair to say that Jardine C&C is a company that has its finger in many pies.
Additionally, the company is part of the sprawling Jardine Matheson Group and counts fellow Singapore-listed companies such as Jardine Matheson Holdings and Jardine Strategic Holdings as its corporate-cousins.
Jardine C&C’s earnings have grown by 16.5% annually from 2008 to 2012, while dividends have been increasing at a slightly faster annual clip of 20%.
Even though the company’s dividend pay-out ratio has been fairly stable, hovering between 38% and 43%, as seen from the chart below, it does not have a fixed dividend policy.
Instead, the Board of Directors of the company view dividend payments as only part of a holistic plan in managing Jardine C&C’s capital “to ensure optimal capital structure and shareholder returns, taking into consideration the future capital requirements of [the company] and capital efficiency, prevailing and projected profitability, projected operating cash flows, projected capital expenditure and projected strategic investment opportunities.”
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing owns shares in Japan Foods.