5 Signs of Winning Companies – Part 2

Hey there, and welcome to the second part of the article.

Here’s a quick recap – in the first article, I talked about two objective signs to look out for in accessing management teams, namely a long listing history and a good financial track record.

Let’s push on to the next three signs we can look out for:

Dividend Record

In accessing the integrity of management, Yeo talked about his requirement for the company to pay a dividend. Naturally, his preference was for the dividend to increase over time.

To be sure, I doubt that the suggestion here is about going out and grabbing the highest dividend paying company you can find. After all, a high dividend paying company does not always mean that it is a good stock.

On the other hand, as my fellow Fool David Kuo would say, “money in my pocket is better than money in another fellow’s pocket”. In this case, I believe that Yeo looks at the dividend as a sign of commitment from the management team to reward its shareholders. For Yeo, a management team at cuts dividends while paying themselves a pretty penny would make it a less interesting investment.

Rampant issuing of new shares

Another sign to look out for would be the rampant issuing of new shares by the management team. To be sure, not all share issues are bad – however, the continued issuing of shares will serve to dilute existing shareholders.

This may be the case for shares of marketing company Global Yellow Pages Limited (SGX: Y07) whose share count multiplied by about eight times over the past decade. This dilution in share count may have contributed to the dismal performance of the company’s shares – over that timeframe, Global Yellow Pages has seen its share price decrease by more than 90%.

As such Yeo is not a fan of such moves, leading to his final point …

Neverending asset purchases

The issuance of new shares may also be used to fund acquisitions. On this topic, Yeo also mentioned that he is not a fan of companies which make too many acquisitions which do not bear any resemblance to its core competence or business strategy.

For Yeo, he prefers focused management who are good at what they do – and reversely, does not make any major swings in business strategy.

A Fool’s take

With more than 700 companies listed on the Singapore exchange, there is a bevy of companies for the Foolish investor to select from. As such, the onus is for you – the Foolish investor – to figure out whether the company chosen is worthy of further study or destined for the “too hard” pile. Yeo’s five signs may serve to help you along in this case.

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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 contributor Chin Hui Leong doesn't own shares in any company mentioned.