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Can ARA Asset Management Manage to Bump Up Its Dividends Soon?

ARA Asset Management’s (SGX: D1R) in the business of managing publicly-listed real estate investment trusts and private real estate-related funds. Some of the locally-listed REITs under its banner include Fortune REIT (SGX: F25U), Suntec REIT (SGX: T82U) and Cache Logistics Trust (SGX: K2LU).

In addition, the firm also provides corporate finance advisory and real estate management services. The chart below showcases the sources of its revenue:

Source: ARA Asset Management’s earnings presentation for the third quarter of 2013

ARA has done very well over the past six years since the start of 2008 with its shares having a total return of 232%. Dividends accounted for almost a third of the company’s total return and that’s partly due to how the pay-outs have grown steadily by 74% from 2.62 Singapore cents in 2007 to 4.55 cents in 2012.

Year

Dividends per share (Singapore cents)

2007

2.62

2008

3.04

2009

3.31

2010

3.96

2011

4.55

2012

4.55

Source: S&P Capital IQ

With a rather strong history of dividend growth, it’s perhaps interesting to question if the company can keep up that trend when it reports its full year results for 2013 next week on 20 Feb 2014.

Over the past six months ended 30 June 2013, ARA had declared an interim dividend of 2.30 Singapore cents per share, which represents a 10% increase over the split-adjusted 2.10 cents dividend that was declared in the corresponding period in 2012. This happened despite a 9% year-on-year decline in half-yearly profit to S$32.1m for the first half of 2013.

As 2013 progressed, ARA saw some improvement in its third quarter results, which brought its profits to S$52.1m for the nine months ended 30 Sep 2013, some 5% lower than a year ago. Nonetheless, the company mentioned that it expects to earn, in 2013, a “comparable” profit as it did in 2012 “barring unforeseen circumstances.”

ARA’s dividend pay-out ratio – the percentage of earnings paid out as dividends – has remained in a rather tight band of 52% to 58% since 2009, as seen below:

Year

Pay-out ratio

2007

58.3%

2008

70.0%

2009

57.9%

2010

52.5%

2011

56.4%

2012

52.9%

Source: S&P Capital IQ

If the company’s forecasts for profits in 2013 turn out to be accurate and it manages to keep its pay-out ratio at the higher end of what it has historically given out, investors could be looking at a bigger annual pay-out when it releases its results.

In ARA’s shareholder letter in its 2012 annual report, it mentioned that the company and the REITs it manages had both been “widely recognised” for “excellence in corporate governance, transparency, shareholder accountability and commitment to a strong dividend policy.”

For instance, Cache Logistics Trust and Fortune REIT had won the “Most committed to a strong dividend policy” and “Most Committed to a Strong Dividend Policy in Hong Kong” awards respectively in 2012 from the Asian financial publication, FinanceAsia. If anything, such industry accolades help lend some strength to the view that ARA’s management would not treat the matter of paying dividends to shareholders lightly.

In any case, investors would know for sure how the company’s finances and dividends would look like for 2013 when it reports its full-year results next week.

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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.