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One Key to Finding Growing Dividends

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Yesterday, I shared why it’s important that investors should focus on a company’s free cash flow in determining its ability to maintain its dividends.

Given the importance of a company’s free cash flow in helping investors sieve out attractive dividend-plays, it thus makes sense to look at companies with growing streams of free cash flow when we’re on the search for shares that stand a good chance of handing out fatter dividend checks in the future.

As a good starting point for further research, here are some shares with free cash flows that have grown steadily over their past five completed financial years.

1. Thai Beverage Public Company (SGX: Y92

Financial Year Free Cash Flow
2008 THB 11.7b
2009 THB 15.3b
2010 THB 12.1b
2011 THB 9.0b
2012 THB 14.9b

Source: S&P Capital IQ

Alcoholic beverage maker and Straits Times Index (SGX: ^STI) component Thai Beverage makes the list with its growing streams of free cash flow. It manufactures and sells spirits, beer (the well-known Chang brand of beers with the eponymous Elephant logo belongs to Thai Beverage), non-alcoholic beverages and food predominantly in Thailand.

Dividends per share for the company have increased from THB0.3 in 2008, to THB0.42 in 2012. Thai Bev’s shares are currently trading at S$0.465 per share, giving it a dividend yield of 3.6%.

2. Boustead Singapore (SGX: F9D)

Financial Year Ended Free Cash Flow
March 2009 S$30.2m
March 2010 S$48.2m
March 2011 S$48.8m
March 2012 S$81.8m
March 2013 S$43.6m

Source: S&P Capital IQ

Boustead Singapore, though only boasting a market cap of less than S$900m, is involved with a wide array of businesses. It has two business segments: Infrastructure-related engineering and Geo-Spatial Technology.

Under the first segment, it helps design and construct industrial and municipal water and waste water treatment plants; design and supply heater systems for oil & gas and petrochemical companies; and design, build, and own industrial facilities among others.

Meanwhile, the Geo-Spatial Technology is involved with the distribution of Geographic Information Services software from the privately owned American firm ESRI.

Dividends for Boustead has increased from S$0.04 per share in the financial year ended March 2009 to S$0.07 for the last completed financial year. At a price of S$1.64, Boustead’s shares have a historical dividend yield of 4.3% based on the S$0.07 pay-out.

3. Japan Foods Holding (SGX: 5OI)

Financial Year Ended Free Cash Flow
March 2009 -S$2.5m
March 2010 S$2.51m
March 2011 -S$0.55m
March 2012 S$5.52m
March 2013 S$8.44m

Source: S&P Capital IQ

Japanese cuisine restaurant operator Japan Foods Holding also makes the cut here. The company has a total of 56 food & beverage outlets – under different brands like Ajisen Ramen, Menya Musashi, Menzo Butao, and Fruit Paradise among others – scattered across Singapore, Hong Kong, Malaysia, Indonesia, and Vietnam.

The company floated on the Catalist stock exchange on Feb 2009 and since then, has done very well for its investors, gaining 440% from its split-adjusted offering price of S$0.11 to its current price of S$0.60. In comparison, the Straits Times Index has gained ‘only’ 91% in that period.

Japan Foods’ dividends have increased significantly from split-adjusted figures of 0.11 Singapore cents for the 12 months ended March 2009, to 1.67 cents for the 12 months ended March 2013.

Based on its current price of S$0.60 and the pay-out of 1.67 cents, Japan Foods’ shares have a historical dividend yield of 2.8%.

4. Vicom (SGX: V01)

Financial Year Free Cash Flow
2008 S$20.3m
2009 S$21.6m
2010 S$16.4m
2011 S$18.1m
2012 S$26.1m

Source: S&P Capital IQ

Vicom, a majority-owned subsidiary of ComfortDelGro Corporation (SGX: C52), is a commercial inspection and testing firm.

Some drivers might find it familiar as the owner of seven out of nine of the vehicle inspection centres in Singapore. But that’s not all that it does. In fact, as of 2010 (Vicom has stopped breaking down its revenue sources since 2011), the bulk of the company’s revenue comes from its test and inspection services that are under its subsidiary SETSCO’s umbrella.

With SETSCO, Vicom’s services include “quality assurance testing and evaluation of building materials, structural and chemical analysis, food and microbiological analysis, environmental monitoring, amongst others.”

The company’s dividends have almost doubled from 9.25 Singapore cents in 2008 to 18.2 cents in 2012.

At its current share price of S$4.90, Vicom has a historical dividend yield – based on the dividends of 18.2 cents in 2012 – of 3.7%.

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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 Holding.