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Can Osim International’s 500% Growth in Dividends Continue?

With a trailing dividend yield of 2.2%, Osim International (SGX: O23) would likely not send the pulses of income investors racing. After all, that level of dividend is below the yield of around 2.8% for the market average as represented by the Straits Times Index (SGX: ^STI).

But, Osim might be a share that could still attract income investors – that is, income investors with an eye for dividend growth. Turns out, the health and well-being outfit has grown its dividends by some 500% since 2009 with consecutive annual increases in its pay-out.

Year

Dividends per share

2009

S$0.01

2010

S$0.02

2011

S$0.03

2012

S$0.04

2013

S$0.06

Source: S&P Capital IQ

With such a strong history of dividend growth in recent years, can it continue to do so?

Interestingly, despite that sharp jump in its dividend over its past five completed-financial years, Osim has never once seemed to over-stretch in its reach for bigger dividends.

Its pay-out ratio – the percentage of earnings paid-out as dividends – has been consistently around 30% except for 2013 when it jumped a little higher to 43%. This suggests that there’s plenty of wriggle room for the company to maintain or grow those dividends even if profits fall short.

Year

Dividend per share

Earnings per share

Pay-out ratio

2009

S$0.01

S$0.037

27%

2010

S$0.02

S$0.074

27%

2011

S$0.03

S$0.102

29%

2012

S$0.04

S$0.118

34%

2013

S$0.06

S$0.140

43%

Source: S&P Capital IQ

In fact, other quantitative measures of its finances also show that it’s a company with some healthy dividends there. For instance, a comparison of Osim’s free cash flow with the cash-dividends paid also shows the company has been able to generate more-than-adequate amounts of actual cash from which dividends can be paid.

Year

Cash dividends paid*

Free cash flow

2009

S$58.8 million

2010

S$13.3 million

S$82.7 million

2011

S$21.9 million

S$87.0 million

2012

S$29.2 million

S$81.6 million

2013

S$28.9 million

S$93.8 million

*Cash dividends paid for 2010 are for dividends declared in 2009 and so on

Source: S&P Capital IQ

A quick glance at its balance sheet also reveals Osim to be a company that’s been in a net-cash position (i.e. total cash on hand exceeds total debt) for majority of the time, showing how it’s not using debt as a source for those dividends.

Year

Total cash

Total debt

2009

S$63.0 million

S$35.3 million

2010

S$56.4 million

S$15.3 million

2011

S$76.5 million

S$133.3 million

2012

S$201.7 million

S$142.2 million

2013

S$267.3 million

S$154.5 million

*Cash dividends paid for 2010 are for dividends declared in 2009 and so on

Source: S&P Capital IQ

With strong finances as seen above, it does not seem that Osim’s dividend growth would be facing any strong threats in the future, though that’s predicated upon the assumption that Osim’s business can continue its winning streak of great profit growth.

At the same time, it might also be prudent for investors to dial back on their growth expectations for Osim’s dividends. From 2009 to 2013, Osim’s dividends have grown at an average compounded annual rate of 56%. That’s clearly unsustainable over the longer-term unless Osim’s business – which consist of the sale of massage chairs, health supplements, lifestyle products and luxury teas – can grow at a commensurate rate.

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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.