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One Share with a Solid History of Growing Dividends

There’s a market-beating mutual fund (the equivalent of a unit trust here) in the USA called the Goldman Sachs Rising Dividend Growth Fund that selects its shares based on two simple criteria.

The fund calls its criteria the “10/10 test”. First, a share must have a minimum 10-year track record of consecutive dividend growth, and secondly, the share’s dividend must have grown by least 10% per year on average.

Armed with these two criteria, the Rising Dividend Growth Fund has swash-buckled its way to market beating returns over the past nine-plus years. The fund has given total returns (inclusive of reinvested dividends) of 8.71% from March 2004 till Nov 2013, besting the S&P 500’s (a broad American stock market index) return of 7.51% in the same time period.

While there’s no guarantee of future returns, the historical track record of this fund does lend weight to the efficacy of its strategy and gives investors a good reason to screen for such shares in our local market.

Within the 30 blue chips that make up the Straits Times Index (SGX: ^STI), the conglomerate Jardine Matheson Holdings (SGX: J36) was the only one that fit the bill. Another index-constituent, Jardine Cycle & Carriage (SGX: C07) came very close to passing the screen, but ultimately didn’t make the cut.

Turns out, there’s a relatively tiny company called Second Chance Properties (SGX: 528), with a market value just south of S$300m, that has a record that gives it a good chance of acing the 10/10 test in the future.

Second Chance is principally engaged in three main businesses: 1) Retail of gold jewellery through the Golden Chance Goldsmith store in Tanjong Katong Complex, Singapore; 2) Retail of fashion apparel under the First Lady brand (with three stores in Singapore and 41 in Malaysia) that caters mainly to the female Malay community; and 3) A portfolio consisting of 59 investment properties in Singapore and Malaysia. In addition, the company also holds a portfolio of securities consisting of various bonds and shares of publicly-listed companies and real estate investment trusts.

The company’s dividends have grown by an annualised rate of 9.9% a year since its financial year ended 30 June 2005. The table below show cases its dividend history in greater detail.

Financial Year Ended

Dividend Per Share (including Special Dividends)

June 2005

S$0.016

June 2006

S$0.0192

June 2007

S$0.0216

June 2008

S$0.024

June 2009

S$0.028

June 2010

S$0.0304

June 2011

S$0.032

August 2012

S$0.0326

August 2013

S$0.034

Source: S&P Capital IQ

In the firm’s latest annual report, for the financial year ended August 2013, its chief executive and founder Mohamed Salleh Marican wrote in his shareholders’ letter that Second Chance “intends to distribute a…dividend of not less than 3.5 cents per ordinary share for financial year 2014 [ending on August 2014].”

If that’s achieved, it would be the ninth consecutive year of growing dividends for the company. Second Chance has been meeting its promised dividend payments over the years as seen below:

Financial Year Ended

Promised Dividend*

Actual Dividend

June 2005

None

S$0.016

June 2006

S$0.016

S$0.0192

June 2007

S$0.0216

S$0.0216

June 2008

S$0.024

S$0.024

June 2009

S$0.028

S$0.028

June 2010

S$0.0304

S$0.0304

June 2011

None

S$0.032

August 2012

None

S$0.0326**

August 2013

None

S$0.034

August 2014

S$0.035

*Promised dividends are adjusted for a 1-for-4 bonus share issue in April 2011.

**Dividends for the financial year ended August 2012 are actually S$0.038 per share for 14 months. On an annualised basis, the figure becomes S$0.0326.

Source: Company’s Annual Reports; S&P Capital IQ

The company’s shares have been a market-beater since the start of 2005, gaining 134% from a split-adjusted S$0.188 back then to S$0.44 today. Second Chance’s capital gains have handily outpaced the Straits Times Index’s return of 52% from 2,070 points to 3,144 points in the same period. If the gains from reinvested dividends are tacked on, Second Chance’s returns become even better at 478%.

At its current price of S$0.44, Second Chance’s shares have a forward dividend yield of 8% based on the S$0.035 per share in dividend that management intends to distribute for the ongoing financial year.

Will Second Chance Properties be able to eventually join Jardine Matheson Holdings as one of the select few shares to have passed the 10/10 test? Only time will tell.

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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 owns shares in Second Chance Properties.