MENU

1 Consistent Dividend Growth Share with an Above Average Yield

Picking shares based on simple criteria such as the rate of growth of their dividends as well as the consistency of that growth can lead to pleasing long-term results. Just check out the Goldman Sachs Rising Dividend Growth Fund.

The fund uses a simple set of rules to pick shares that it calls the “10/10 test”. Basically, the fund seeks to invest in companies that have increased their dividend by at least 10% per year on average for 10 consecutive years.

As of 30 April 2014, the Rising Dividend Fund has generated compounded annualised total returns (where gains from reinvested dividends are included) of 8.83% since its inception on 23 March 2004. By way of comparison, the annualised total return of the S&P 500 (a broad measure for the American share market) in the same time frame has been just 7.72%.

Such a track record lends strength to the efficacy of investing in shares that have been able to consistently grow their dividend over the years.

In light of that, here’s a share that has had a solid track record of growing its dividend: Jardine Cycle & Carriage (SGX: C07). At its current price of S$44.09, it even carries a trailing dividend yield of 3.1%, which is higher than the market average as represented by the Straits Times Index’s (SGX: ^STI) yield of around 2.7% at its current level of 3,281 points.

Year

Jardine C&C’s dividend (US cents)

2003

8.72

2004

10

2005

18

2006

20

2007

43

2008

50

2009

58

2010

98

2011

123

2012

123

2013

108

Source: S&P Capital IQ

From the table above, it’s easy to see that while the company’s dividend record since 2011 hasn’t been as stellar as its past, its overall track record in the past decade still shows an unmistakable upward trend.

More than 90% of Jardine Cycle & Carriage’s annual revenue and profit stems from its 50.1%-owned subsidiary, the Indonesian conglomerate Astra. In turn, Astra has its fingers in many pies including automobile dealership, mining equipment sales, banking and finance, insurance, and oil palm plantations. Automobile dealership in Indonesia is by far the most important part of Astra’s business though, as it has accounted for half of the subsidiary’s annual underlying profit in the past two years

Astra’s automobile dealership business, though facing intense competition, does have a strong competitive advantage: It holds exclusive distribution rights for well-known automotive brands like BMW, Toyota, and Peugeot; it also has a huge distribution network that results in it distributing more than 50% of Indonesia’s cars.

2013 was a tough year for the company as the weaker Indonesian rupiah weighed heavily on its result, leading to the decline in dividend. It was the same currency-story in the first quarter of 2014 as an 18% year-on-year drop in the value of the rupiah against the US dollar during the quarter more than overcame a 10% increase in Astra’s net income in rupiah terms. While currency fluctuations haven’t been ideal, it’s at least good to know that the company’s business is still growing in local currency terms.

And for what it’s worth, Indonesia also has favourable population demographics, which can be a very important factor in helping to propel a country’s economic growth. In that respect, it can be said that there might be a strong tailwind going for Jardine Cycle & Carriage.

Foolish Bottom Line

All told, the company has a few positives going for it: 1) It has a great track record of growing dividends; 2) it has a competitive edge in its important businesses (i.e. its automobile dealership); and 3) it has a powerful tailwind going for it with regard to Indonesia’s possible economic expansion in the future.

At the same time though, there are also challenges the company faces. These include: 1) A falling Indonesian rupiah which might negate all the local growth in its Indonesian-based businesses; and 2) heightened competition in the automobile distribution market in the country.

Investors wanting to invest in Jardine Cycle & Carriage would have to weigh the pros and cons, in addition to being comfortable with the company’s other financial characteristics such as its cash flow situation and balance sheet strength.

Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool's free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.  

The Motley Fool's purpose is to help the world invest, better. Like us on Facebook  to keep up-to-date with our latest news and articles.

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.