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One Surprising Fact about One of the Straits Times Index’s Lowest Dividend Yields

dividends pic

As of 25 Dec 2013, all the 30 constituents of the Straits Times Index (SGX: ^STI) had paid a dividend for their last completed financial year. However, as I’ve mentioned before, there exists distinct dichotomies among the blue chips that make up the index in terms of their fundamentals.

And, one of the big discrepancies that exist would undoubtedly be the trailing dividend yields – where the dividends paid by a company in its last financial year are divided by its current share price – for each of the index’s 30 constituents.

For example, on the high-end of the yield-scale, we have shares such as container port business trust Hutchison Port Holdings Trust (SGX: NS8U) as well as retail-mall-focused real estate investment trust CapitaMall Trust (SGX: C38U). These two trusts carry a distribution yield of 10.1% and 5.0% respectively.

On the other end of the yield-scale, we have casino and resort outfit Genting Singapore (SGX: G13), as well as conglomerate Jardine Strategic Holdings (SGX: J37). Those two shares are the two lowest-yielding components of the Straits Times Index with their yields of 0.7% and 0.8% respectively.

Company

Price:
25 Dec 2013

Dividends for last completed financial year

Trailing Dividend Yield

Hutchison Port Holdings

US$0.655

US$0.066

10.1%

CapitaMall Trust

S$1.90

S$0.095

5.0%

Genting Singapore

S$1.465

S$0.01

0.7%

Jardine Strategic Holdings

US$31.80

US$0.24

0.8%

Source: S&P Capital IQ

When placed beside the likes of CapitaMall Trust or Hutchison Port Holdings, Jardine Strategic Holdings’ paltry dividend yield today pales in comparison. But here’s where it gets interesting.

A decade ago, on 26 Dec 2003, Jardine Strategic was exchanging hands for US$4.00 a share. Assuming an investor had bought shares of the conglomerate then, the yield-on-cost for his shares – based on Jardine Strategic’s dividends for 2012 and its US$4.00 share price 10 years ago – would be a tasty 6%. That’s because over time, from 2002 to 2012, Jardine Strategic had grown its dividends (in almost every year) by some 66% from US$0.145 per share to US$0.24 per share.

Back in 26 Dec 2003, Jardine Strategic had carried a nondescript dividend yield of 3.6% but it has since grown into a big yield-on-cost.

Looking at such a history, there’s one key takeaway for investors: Never dismiss a share just because its dividend yield does not look exciting now. In fact, you might even be discarding a share for its currently-low-yields at your own peril.

All told, a study of a company’s future prospects, as well as the possibility of outsized dividend growth in the future, is likely to be even more important than focusing on its current dividend yield. That’s something investors should bear in mind when going about searching for their own dividend shares.

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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 writer Chong Ser Jing doesn’t own shares in any companies mentioned.