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A Close Look At ARA Asset Management Limited’s Dividend, Growth, And Valuations

Real estate funds management outfit ARA Asset Management Limited (SGX: D1R) has delivered some decent returns since its listing nearly nine years ago in November 2007.

At the close of its trading debut, its shares had a price of S$0.86 each. Today, those same shares are worth some S$1.37 apiece, equating to a total return of 59%. For some perspective, the Straits Times Index’s (SGX: ^STI) return in the same period is a negative 23%.

Here are three important aspects about ARA Asset Management’s business fundamentals that may interest investors, namely, its dividend, growth, and valuation.

Dividend

At ARA Asset Management’s current share price, it has a dividend yield of 3.6% thanks to its trailing dividend of S$0.05 per share. This is slightly higher than the 3.2% yield carried by the SPDR STI ETF (SGX: ES3), an exchange-traded fund that tracks the Straits Times Index.

To assess the sustainability of the company’s dividend, we can look at two financial ratios: the debt-to-shareholders’ equity ratio and the pay-out ratio. The former is a gauge for the level of financial risk a company is taking on and the latter expresses a company’s dividend as a percentage of its profit.

As a rule of thumb, the lower the ratios are, the better it could be. There’s one other important thing to keep in mind: The two ratios are not the only things investors should be looking at when analysing a company’s dividend.

Currently, ARA Asset Management has a debt-to-shareholders’-equity ratio of 14%. Its pay-out ratio is 57% given its trailing earnings of S$0.087 per share.

Growth

The following is a table illustrating ARA Asset Management’s revenue and earnings per share from 2011 to 2015:

ARA Asset Management's business growth table
Source: S&P Global Market Intelligence

The company has had steady and unspectacular top-line growth in the last five years. The same can be said for its earnings per share. The two financial numbers had climbed by a total of 27% and 11%, respectively, from 2011 to 2015.

Valuation

At its current share price, ARA Asset Management has a trailing price-to-earnings ratio of 15.7.

For some perspective, consider these: (1) The SPDR STI ETF has a PE of 12 and (2) ARA Asset Management’s current PE is at the middle of where it has been in the last five years. On the latter point, you can check out the chart below:

ARA Asset Management's PE ratio since 24 August 2011
Source: S&P Global Market Intelligence 

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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 Lawrence Nga doesn’t own shares in any companies mentioned.