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The 5% Dividend Yield Offered By These 2 Shares Might Make You Smile

Everyone loves a good dividend stock. After all, as the saying goes, “A bird in the hand is worth two in the bush.”

Although companies can argue that retaining more of their earnings can lead to more growth for shareholders in the future, some of us, as passive investors, may still prefer to see more pay-outs.

That’s because we can reinvest the dividends in any way we deem fit rather than having to solely trust a company’s management to make wise and shareholder-friendly capital allocation decisions.

With these in mind, what can be more attractive than a dividend-paying share? The answer is simple, a share which is both paying and growing its dividends.

I ran a quick scan on the universe of Singapore-listed companies and found a list of shares that have both a growing dividend and a dividend yield of more than 5%. Here are two of them.

The slow and steady

Venture Corporation Ltd (SGX: V03), an original equipment manufacturer for electronics and medical equipment makers, has been consistently paying out a dividend over the past decade.

In fact, the firm has doubled its ordinary dividend from just S$0.25 per share in 2004 to $S$0.50 in 2014. At Venture Corp’s current share price of S$8.54, the S$0.50 dividend in 2014 would give the firm’s shares a dividend yield of 5.9% – that’s a great yield indeed.

However, investors have to watch the payout ratio (dividend as a percentage of income) for the company as it is currently near the 100% mark. Having such a high payout ratio might prevent Venture Corp from reinvesting in its business to stay relevant in its market.

The conglomerate

One of the largest companies in Singapore with an attractive dividend yield would be the S$16 billion conglomerate Keppel Corporation Limited (SGX: BN4).

This might not be a surprise given the sharp collapse in the price of oil which began late last year; as Keppel Corp has significant exposure to the oil and gas sector due to its rig manufacturing business, the firm has seen its share price fall in tandem with the price of oil, thus pushing up its dividend yield.

At Keppel Corp’s current price of S$8.87, it has a yield of 5.4% based on its dividend of S$0.48 per share in 2014.

But, seeing how bad the oil industry has become now, Keppel Corp’s earnings might be under pressure this year which might then translate to a lower dividend.

That being said, the long-term track record of Keppel Corp has been quite impressive; the firm had managed to grow its annual ordinary dividend at a rate of 18.1% per year over the past decade from S$0.091 per share in 2004. And with a payout ratio of less than 50% in 2014, there is real hope that Keppel Corp’s dividends can still increase over the next decade.

Foolish Summary

Having a long-term track record of paying a consistent dividend is one of the hallmarks of a financially strong company.

However, investors have to bear in mind that any money that is paid out to investors is money which can be reinvested to grow the company. If the firm is paying out an unsustainable dividend, it might be more damaging to shareholders in the long run. That’s especially so if the company fails to reinvest into its business to remain relevant.

For more analyses on dividend investing and important updates about the stock market, sign up to The Motley Fool Singapore's free weekly investing newsletter, Take Stock Singapore. Written by David Kuo, it can help you grow your wealth 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 Stanley Lim owns Keppel Corporation Limited.