3 Shares with the Potential for Growing Dividends

Shares with the ability to grow their dividends can help create a wonderful stream of growing passive income for investors. The problem is, how might one find such shares?

Here’s where the payout ratios can help. There are two types of payout ratios: One measures a company’s dividends as a percentage of its earnings (let’s call this the earnings payout ratio); the other uses a company’s free cash flow in place of its earnings (let’s call this the cash flow payout ratio).

Both are useful in giving us an indication of how much room for error a company has in maintaining or growing its dividends in the future. The lower the ratios, the thicker the cushion a company has to absorb untoward developments.

With this in mind, here are three shares that may potentially deliver higher dividends in the years ahead: Raffles Medical Group Ltd (SGX: R01), Hour Glass Ltd (SGX: AGS), and OSIM International Ltd (SGX: O23)

Payout ratios for Raffles Medical, Hour Glass, and OSIM (data as of each stock's last completed fiscal year)

Source: S&P Capital IQ

As you can see from the chart above, based on their numbers for their last-completed fiscal years, the trio have earnings and cash flow payout ratios that are around 50% or less. The low payout ratios point to them having a large margin of safety in place when it comes to their ability to raise their dividends in the future.

A Fool’s take

Payout ratios can be a great place to start for an investor who’s looking for reliable dividend stocks. But, it’s worth noting that there are many other factors investors have to think about before an investing decision can be made. Some of these other considerations include the strength of the company’s balance sheet and the cyclicality (or lack thereof) of the firm’s business.

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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.