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Three Strong Dividend Shares

It’s one thing for a share to pay a dividend – it’s another to have a share that’s paying a strong dividend. Signs of a strong dividend can come from the study of a few simple financial figures from a share.

Firstly, I’ll cast a glance over at a share’s track record of paying dividends. If the trend generally points upwards with no severe interruptions, that’s a good thing.

Next, I’ll be comparing the free cash flow that’s generated by a company with its dividends. A share that can generally produce free cash flow that’s higher than its dividends gives itself some buffer to maintain or even grow those dividends during rough times.

Lastly, a strong balance sheet that has consistently recorded more cash than debt would also give the share plenty of wriggle room to ensure its survivability in downturns and at the same time, provide ammunition for dividends if cash flows temporarily fall short.

While such criteria might cause legitimately-good dividend shares to slip through the net, it can help lessen (not remove) the risks of picking duds. Without further ado, here are three shares that have displayed the requisite financials over the past 10 years: Boustead Singapore (SGX: F9D), Vicom (SGX: V01), and Raffles Medical Group (SGX: R01).

Dividend history

The infrastructure engineering outfit Boustead Singapore has seen its dividends climb from 0.75 Singapore cents in the financial year ended March 2003 to 7 Singapore cents in the 12 months ended March 2013.

Meanwhile, the commercial inspection and testing firm Vicom and healthcare provider Raffles Medical Group aren’t no slouches either. From 2003 to 2013, dividends at Vicom have jumped more than three-fold from 6.3 Singapore cents to 22.5 cents; those at Raffles Medical Group have doubled and more from 2.27 cents to 5.0 cents.

Dividends per share (Singapore cents)
Year Boustead Singapore* Vicom Raffles Medical Group
2003 0.75 6.30 2.27
2004 0.75 5.75 2.27
2005 1.50 8.50 2.72
2006 1.00 11.9 3.63
2007 3.25 15.5 2.50
2008 5.00 9.25 2.50
2009 4.00 11.8 3.00
2010 5.50 16.1 3.50
2011 7.00 17.6 4.00
2012 5.00 18.2 4.50
2013 7.00 22.5 5.00
*For Boustead Singapore, the year 2003 would correspond to the financial year ended 31 March 2003 and so forth

Source: S&P Capital IQ

Ability to generate free cash flow

While it’s not always the case year-in/year-out, the trio of companies has been able to produce free cash flow that’s higher than their dividends most of the time. The growth in their free cash flow itself is also something to note.

Free cash flow per share (Singapore cents)
Year Boustead Singapore* Vicom Raffles Medical Group
2003 3.23 13.1 2.09
2004 3.17 12.9 3.24
2005 -2.21 12.9 2.26
2006 8.56 13.0 3.87
2007 7.95 20.4 7.34
2008 14.4 24.0 6.56
2009 5.87 25.2 8.35
2010 9.53 19.1 8.36
2011 9.63 20.8 11.0
2012 16.2 29.5 11.0
2013 8.67 32.3 11.5
*For Boustead Singapore, the year 2003 would correspond to the financial year ended 31 March 2003 and so forth

Source: S&P Capital IQ

Clean balance sheet

Throughout the past decade, the three shares have had remarkably clean balance sheets that carried either minimal or no debt, as evidenced by their net-cash positions (i.e. more cash than debt). It’s also worth noting how the net-cash positions for those three shares have grown throughout the years, which can be a testament of sorts to the cash-producing ability of their businesses.

Net-cash on Balance Sheet (S$, million)
Year Boustead Singapore* Vicom Raffles Medical Group
2003 16.4 1.96 32.0
2004 14.3 5.74 40.3
2005 3.54 9.59 46.6
2006 83.8 13.8 55.0
2007 101 14.3 -3.9
2008 153 28.3 19.2
2009 151 42.5 51.2
2010 201 49.2 87.5
2011 192 55.2 30.5
2012 179 66.0 85.0
2013 201 78.5 269
*For Boustead Singapore, the year 2003 would correspond to the financial year ended 31 March 2003 and so forth

Source: S&P Capital IQ

Foolish Bottom Line

While a basic scan of the historical financials of a company can help guide investors toward the right track in finding durable businesses that can reward shareholders with growing dividends through the years, it’s not enough to come to a definitive conclusion with regard to a company’s merits. It’s equally important that investors determine if the businesses of the company would have the ability to perpetuate their historical performance too.

As impressive as their backward-looking financials have been, the above is certainly something to bear in mind when looking at the trio of Boustead Singapore, Vicom, and Raffles Medical Group.

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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 owns shares in Raffles Medical Group.