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Are These 3 Shares Some of Singapore’s Best Dividend Plays?

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I’m 27 this year, which means I have a long way to go before retirement. As such, when it comes to investing for future income, my focus would not be on high-yielding shares (in fact, shares with high-yields might even be dangerous).

Instead, I’m out looking for shares that have the potential to grow their dividends for years into the future; for that, I’m also willing to except yields that are low currently.

To aid my quest, one of the key things I focus on would be a share’s track record. Investing is always about looking ahead – that’s true. But just like how we tend to interpret the future actions of a company’s management team by looking back on their history in handling business affairs (have management displayed integrity, honesty, foresight, and executional ability in the past?), a company’s financial history can also contain useful clues for us in terms of how its finances can look like in the future.

So, here are two important financial figures I’d look at: 1) The company’s history with paying dividends; and 2) the company’s history in terms of growing its free cash flow. In particular, the second criterion is important because a company can only grow its dividends over the long-term in a reliable manner if it manages to generate increasing amounts of cash from its business operations over time.

In no particular order, here are three shares that look great on both criteria.

1. Raffles Medical Group (SGX: R01)

Year Dividend per share* Free cash flow per share*
2003 2.27 2.08
2004 2.27 3.20
2005 2.72 2.22
2006 3.63 3.80
2007 2.50 7.22
2008 2.50 6.48
2009 3.00 8.26
2010 3.50 8.23
2011 4.00 10.8
2012 4.50 11.0
2013 5.00 11.3

*Figures are in Singapore cents

Source: S&P Capital IQ

The healthcare operator runs 78 multi-disciplinary clinics in Singapore and four medical centres in total in Hong Kong and Shang Hai. In addition, the company also operates its flagship Raffles Hospital along North Bridge Road in Singapore.

To drive growth, Raffles Medical Group has plans to expand the floor area of Raffles Hospital by almost 75%. The company’s also redeveloping a piece of real estate in Holland Village into a 5-storey commercial building that would house healthcare facilities, a bank, retail shops, and food & beverage outlets.

At its current price of S$3.88, the company’s valued at 25 times trailing earnings and carries a historical dividend yield of 1.3% based on its dividend for 2013.

2. Kingsmen Creatives (SGX: 5MZ)

Year Dividend per share* Free cash flow per share*
2003 0.46 -3.01
2004 0.47 1.86
2005 0.67 2.78
2006 1.33 5.18
2007 2.00 6.77
2008 3.00 7.66
2009 3.50 0.00
2010 4.00 7.46
2011 4.00 5.54
2012 4.00 14.8
2013 4.00 9.53

*Figures are in Singapore cents

Source: S&P Capital IQ

As a player within the MICE (Meetings, Incentives, Conventions, and Exhibitions) industry, Kingsmen Creatives’ main bread and butter is to help design, fabricate, and put in place installations for retail stores, offices, exhibitions, theme parks, and museums, amongst other venues.

Some of the company’s more well-known clients include Kenzo, Hugo Boss, Universal Studios Singapore, Coach, Tag Heuer, and Swarovski. The company has been doing a great job for its clients over the years, judging from how 70% or more of them would return to it for its services.

Kingsmen Creatives’ shares are currently exchanging hands at S$0.91 apiece, giving the company a trailing price/earnings (PE) ratio of just 10.7 and a historical dividend yield (based on its dividend for 2013) of 4.4%.

3. Boustead Singapore (SGX: F9D)

Year ended 31 March Dividend per share* Free cash flow per share*
2004 0.75 2.89
2005 1.50 -2.17
2006 1.00 8.45
2007 3.25 7.85
2008 5.00 14.3
2009 4.00 5.86
2010 5.50 9.50
2011 7.00 9.62
2012 5.00 16.2
2013 7.00 8.65
2014 7.00 19.3

*Figures are in Singapore cents

Source: S&P Capital IQ

Boustead Singapore is an infrastructure-related engineering services provider and geo-spatial technology provider.

As part of the company’s main business activities, it makes use of its technical and engineering-related expertise to help design and build: 1) customised high-tech industrial facilities; 2) direct-fired process heater systems and various types of electronic systems that are used in both the upstream and downstream portions of the oil & gas industry; and 3) water and waste water treatment systems. It’s not easy to replicate the type of institutionalised engineering- and project-management-related knowledge that the company has in those lines of work.

Boustead Singapore’s role as a geo-spatial technology provider sees it having an exclusive license to distribute the geographic information systems (GIS) and location intelligence solutions that are created by the privately-owned American company ESRI. The licenses are held by joint-venture companies of which Boustead Singapore owns almost 90% of; the remaining ownership stakes in the JVs are held by ESRI itself.

The company’s trading at S$1.90 per share currently, giving it a trailing PE ratio of 13.7 and a historical dividend yield of 3.7%

Foolish Bottom Line

The market, as represented by the Straits Times Index (SGX: ^STI), offers a yield of around 2.7% at its current level of 3,271 points. Although Kingsmen Creatives and Boustead Singapore have yields higher than that of the market, they aren’t fantastically high yields; in fact, Raffles Medical Group even has a yield lower than the market’s. Simply put, the trio aren’t what investors would normally term as ‘high-yielding shares’.

But like I mentioned earlier, for investors who are out looking for future income, it’s not a share’s current yield that matters – it is the growth of the share’s dividend in the years ahead that does. The three shares, despite not having been able to grow their dividends and free cash flow in each consecutive year, has still shown an unmistakable upward trend over the past decade.

Can they continue growing like how they’ve done in the past? That’s the million dollar question and unfortunately, no one can really give any definite answers. But that said, shares that have a solid track record in growing their dividends and free cash flow can be a good place for income investors to start looking for potential opportunities.

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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 and Kingsmen Creatives.