Why Have Singapore Press Holdings Limited’s Shares Gained 40% In Value In The Last 5 Years?

I think it is fair to say that most investors want to find stocks that can increase in value in the future, either from an appreciation in the share price or through the distribution of dividends.

So, it’s worth keeping in mind the idea that both factors – price appreciation and dividends – are generally derived from the same source, a company’s profit.

This profit is, in turn, driven by a company’s business performance. In general, companies with strong businesses exhibit sustainable growth, high margins, high returns on equity, and low leverage (leverage is a gauge of how much debt a company’s taking on).

In here, I want to look at the business performance of Singapore Press Holdings Limited (SGX: T39) in its last five fiscal years and track the total return of its stock. The total return takes into account gains from the share’s reinvested dividends.

Here’s a table showing some of Singapore Press Holdings’ business numbers from its fiscal year ended 31 August 2011 (FY2011) to FY2015:

Source: S&P Global Market Intelligence

There are a few things to highlight from the table.

First, the company’s revenue and earnings have both declined, the latter by a higher magnitude.

Second, the company’s return on equity has dropped sharply. The return on equity measures a company’s ability to generate a profit with the shareholder’s capital it has. Singapore Press Holdings has gotten poorer at that over the years.

Third – and the good thing here – is that Singapore Press Holdings’ gearing has fallen. Gearing is a gauge of the level of financial risk that a company is taking on.

Singapore Press Holdings’ performance can perhaps be better understood when we look at its business. The bulk of the company’s revenue comes from advertising activity that takes place on the newspapers and magazines it publishes. But, print media has been fighting an uphill battle against digital content for years; in the four years from FY2012 to FY2015, Singapore Press Holdings’ newspaper ad revenue has fallen in each year.

Over the five years ended 13 September 2016, Singapore Press Holdings’ share price has remained essentially flat. Investors have basically nothing to show for in terms of capital appreciation. But, when dividends are included, the company’s total return vaults to 40%.

These highlight two important ideas. First, a company’s share price is often driven by the performance of its underlying business over the long-term. Second, dividends can be an important component of an investor’s long-term returns.

If you like what you've seen, you can get even more investing insights and analyses from The Motley Fool's weekly investing newsletter Take Stock Singapore. It's FREE, so do check it out here.

Also, like us on Facebook to follow our latest news and articles. The Motley Fool's purpose is to help the world invest, better.

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.