Why Have Thai Beverage Public Company Limited’s Shares Gained 344% In Value In 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 Thai Beverage Public Company Limited (SGX: Y92) in its last five fiscal years and track the total return of its stock. The total return takes into account the gains from reinvested dividends.

The following’s a table showing some of Thai Beverage’s business numbers from 2011 to 2015:

Source: S&P Global Market Intelligence

Thai Beverage has managed to grow both its revenue and earnings per share. The former is up by 31% in total, whereas the latter is up by 119%.

Meanwhile, the company’s return on equity has also climbed from 20.7% in 2011 to 24.4% in 2015. The return on equity measures a company’s ability to generate a profit with the shareholder’s capital it has.

We can also observe that Thai Beverage’s gearing has increased only slightly from 28.8% in 2011 to 37.1% in 2015. Gearing is a gauge for the level of financial risk that a company is taking on and a company can actually increase its return on equity by pushing up its gearing. In Thai Beverage’s case, its higher return on equity had received only a little help from an increase in gearing.

Over the five years ended 28 September 2016, Thai Beverage’s share price has climbed by 275%. When gains from reinvested dividends are factored in, the company’s total return vaults to 344%.

The experience of Thai Beverage highlights two important points about investing. The first is the aforementioned idea that a stock’s price is often driven by the performance of its business over the long term. The second is that dividends can be a heavy driver of an investor’s returns with a stock.

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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.