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Three Things To Like About City Developments

CDL logoFounded in 1963 and still going strong today despite the ups and downs of the property market. That has to be the first thing to like about City Developments (SGX: C09).

One of the important qualities of a property developer is experience. When you entrust your money to a property company, you want to know that your investment is going to be well looked after. In the case of City Developments, it has over the years, delivered an acceptable Return on Equity (RoE) of around 10% for shareholders.

A 10% RoE would imply that shareholders are earning $10 on every $100 of equity in the business. That is not a million miles away from the median RoE for the 30 companies that make up the Straits Times Index (SGX: ^STI), which is 9%.

City Developments is also quite well diversified geographically. That is the second thing to like about the company. Around two-thirds of its assets are located in Singapore. The rest can be found in the US, the UK, and dotted around a host of other countries that include Australia, New Zealand and the Middle East.

Geographical diversification is the equivalent of not putting all your eggs in one basket, which is important when it comes to property investments. So, while the Singapore property market might be showing signs of cooling, the same cannot be said of, say, the London, the US and the Australian markets where prices are rising quickly.

In 2008, UK and US, property prices plunged just when Singapore real estate prices were climbing to heady heights. But today, the shoe is firmly on the other foot. Property prices in the UK have almost returned to pre-slump levels with little sign that politicians are about to put on the brakes.

City Developments’ wide geographic spread has allowed it to pay an uninterrupted and unchanged dividend of 8 cents per share since 2001. Some might balk at the thought of static dividends. However, the total return for shareholders is made up of two separate components – capital growth and dividend income.

In the case of City Developments the total return to shareholders since 2001has been 8%. Around 6% has been generated through capital growth and the rest from dividends. An 8% annual total return is hardly pedestrian. It would suggest that long-term investors have doubled their money every nine years. What is there not to like about that?

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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 Director David Kuo doesn’t own shares in any companies mentioned.