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Two Blue Chips with Consistently Growing Dividends

Dividends are a great source of income for many investors. But the thing is, investors can sometimes tend to overlook the importance of growing dividends.

In fact, there are even mutual funds (the equivalent of unit trusts here) in the USA that place a huge emphasis on finding shares with growing dividends in order to beat the market. One such fund is the Goldman Sachs Rising Dividend Growth Fund.

It selects its investments based on two simple criteria that it calls the 10/10 test: 1) A share must have at least 10 years of consecutive dividend growth, and 2) dividends from the share must have increased by at least 10% on average annually.

As of 31 Jan 2014, the fund has delivered compounded annualised returns of 8.41% since its inception on 23 March 2004. In contrast, the S&P 500, a broad American stock market index consisting of 500 of some of the biggest publicly-listed companies there, has returned only 7.26% per year in the same time frame.

The Rising Dividend Growth Fund’s simple strategy and market-beating returns thus gives some validation to the importance of growing dividends in generating superior long-term returns for investors.

ComfortDelGro Corporation (SGX: C52) and CapitaMall Trust (SGX: C38U) are among the 11 10 blue chips within the Straits Times Index (SGX: ^STI) that had recently released their full-year earnings as of today. And though their overall track record in paying dividends would not pass the Rising Dividend Growth Fund’s 10/10 test, the two shares’ latest results have helped them stretch their record of consecutive annual-dividend growth to five years.

Year

ComfortDelGro’s dividends

CapitaMall Trust’s dividends

2008

5.0 cents

7.52 cents

2009

5.3 cents

8.85 cents

2010

5.5 cents

9.24 cents

2011

6.0 cents

9.37 cents

2012

6.4 cents

9.46 cents

2013

7.0 cents

10.3 cents

Source: S&P Capital IQ

In ComfortDelGro’s latest earnings for 2013, the land transport company managed to set a new revenue-record for itself when it managed to grow its revenue by 5.7% year-on-year to S$3.75 billion. Its profits meanwhile had increased by the same percentage points to S$263 million. The company’s growth came on the back of increased revenue from its bus, bus station, rail, taxi, and inspection & testing services.

Meanwhile, CapitaMall Trust, a real estate investment trust with 16 retail properties in Singapore, saw its net property income increase by 12.9% to S$503 million in 2013 with its distributable income going up by 12.4% to S$356 million. The REIT’s growth came partly as a result of an increase in both shopper traffic and tenants’ sales at its malls. The former was 3.1% higher in 2013 while the latter grew by 2.5% year-on-year.

Foolish Bottom Line

Can those two shares eventually be able to pass the 10/10 test? Only time can tell. But what we know now is that growing dividends can be a powerful tool to build long-term returns. Yet at the same time, investors should also be wary of shares that care only about increasing their dividends without any regard for their overall corporate health. As the saying goes, you can have too much of a good thing.

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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.