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Three Growth Shares with Growing Dividends

Shares with double-digit earnings growth are often termed as growth shares and they can sometimes fall under the radar with income investors.

That’s because each dollar of earnings from a growth share can sometimes command a higher premium in the market and since growth companies often elect to retain a bigger portion of profit for growth instead of distributing them as dividends, this ultimately results in growth shares having low dividend yields.

But, growth shares can also make for stunning dividend plays over the long-term if their dividends eventually tag along with their profit growth to result in a growing yield-on-cost. Here are three shares with strong profit and dividend growth over the past four years:

1. Osim International (SGX: O23)

The maker of luxury massage chairs and related products had recently achieved 20 straight quarters of profit growth when it released its latest fourth quarter results for 2013. Osim, which also sells nutritional supplements in Richlife and GNC stores and luxury tea products under the TWG Tea brand, had seen strong consumer demand for its products across the board, leading to the growth it had experienced.

While the past few years has been great for the company, life’s not just a bed of roses: Osim recently got embroiled in a lawsuit involving other shareholders of TWG Tea and the case is ongoing though the company believes any allegations of wrongdoing on its part are “unmeritorious and groundless”.

In any case, Osim’s strong historical profit and dividend growth is shown in the table below:

Year

Earnings per share
(Singapore cents)

Dividends
(Singapore cents)

2009

3.68

1.0

2010

7.38

2.0

2011

10.2

3.0

2012

12.0

6.0

2013

14.0

6.0

Compounded annual growth rate from 2009 to 2013

39.8%

56.5%

Source: S&P Capital IQ

At a price of S$2.60 each, Osim’s shares are valued at 19 times trailing earnings with a historical dividend yield of 2.3% based on its dividend for 2013.

2. Riverstone Holdings (SGX: AP4)

Who says a boring company can’t achieve exciting results? Riverstone Holdings’ corporate performance from 2009 to 2013 has certainly been exciting for shareholders given how its profits have grown at an average rate of 13.8% per year.

Year

Earnings per share
(Malaysian sen)

Dividends
(Malaysian sen)

2009

9.54

5.3

2010

13.0

5.9

2011

12.2

5.9

2012

12.2

6.0

2013

16.0

6.8

Compounded annual growth rate from 2009 to 2013

13.8%

6.4%

Source: S&P Capital IQ

But while Riverstone’s mid-teen growth rates could set pulses racing, its business on the other hand, would likely incite yawns from investors looking for the next social media darling: Riverstone Holdings makes rubber gloves of the nitrile and latex variety for the healthcare and cleanroom industries.

The company currently has an annual production capacity of 3.1 billion with a new manufacturing plant under construction in Taiping, Malaysia, on a 30-acre site (more than its current total factory size of 22 acres) and it is “expected to be operational” in the third quarter of this year.

It’s currently trading at S$0.79 apiece and being valued at a trailing price-to-earnings ratio of 13. Shares of the glove maker also carry a historical dividend yield of around 3.3%.

3. First Resources (SGX: EB5)

Given how other palm-oil related plays like Golden Agri-Resources (SGX: E5H) had recently suffered on the back of a decline in crude palm oil prices, it might seem strange to peg an oil palm producer like First Resources as a ‘growth share with growing dividends’. But, grown it has.

Year

Earnings per share
(US cents)

Dividends
(Singapore cents)

2009

7.74

2.2

2010

9.84

2.9

2011

13.4

3.5

2012

15.3

4.0

2013

15.0

4.5

Compounded annual growth rate from 2009 to 2013

18.1%

19.9%

Source: S&P Capital IQ

First Resources, an integrated oil palm producer, started life only in 1992 and currently owns more than 170,000 hectares of plantation assets in Indonesia in addition to operating 12 palm oil mills in the country. The company’s latest production highlights for the two months ended Feb 2014 shows healthy year-on-year growth in production (in terms of weight) of harvested fresh fruit bunches, crude palm oil, and palm kernel of 8.5%, 10.4%, and 13.1% respectively.

Shares of First Resources are worth S$2.42 apiece now and are valued at around 12.8 times trailing earnings with a dividend yield of 1.9%.

Foolish Bottom Line

The three shares mentioned above have displayed some strong profit growth over the past few years. Osim, in particular, has grown really strongly, yet carry an earnings multiple that’s only 50% higher than the Straits Times Index’s (SGX: ^STI) corresponding figure of 13. The other two shares – Riverstone and First Resources – have roughly the same valuation as Singapore’s stock market benchmark.

This might make them seem cheap, especially when compared to their historical growth rates. But while strong past performance might help unearth good investment opportunities, it’s never a guarantee and there’s still plenty of work to be done from an investing standpoint in discerning the ability of those three shares to continue growing their profits and dividends in the years ahead.

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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.