Having money transferred to your bank account every few months certainly feels good. Especially when you seemingly do not have to work too much for it. This is why income investing is such an appealing prospect to investors. But what is perhaps more enticing is earning more money each year, without even putting in more capital. This is achieved by investing in companies that grow their dividends each year. According to a report by Singapore Exchange Limited (SGX:S68), over the last five years, five out of the 27 Straits Times Index (SGX: ^STI) constituent stocks (excluding the three REITs)…
Having money transferred to your bank account every few months certainly feels good. Especially when you seemingly do not have to work too much for it.
This is why income investing is such an appealing prospect to investors. But what is perhaps more enticing is earning more money each year, without even putting in more capital. This is achieved by investing in companies that grow their dividends each year.
According to a report by Singapore Exchange Limited (SGX:S68), over the last five years, five out of the 27 Straits Times Index (SGX: ^STI) constituent stocks (excluding the three REITs) have managed to grow their dividends each year. Among them, two stand out to me as quality stocks that can continue their impressive track record of increasing their dividends every year.
SATS Ltd (SGX:S58)
The first company, SATS, is the chief ground-handling and in-flight catering service provider at Changi Airport. It controls about 80% of Changi airport’s ground handling and catering services. It also provides gateway services such as airfreight handling services, passenger services, aviation security services and baggage handling services among others.
Through investments and joint ventures, SATS also has a presence in overseas airports. As of now, the company it present in 60 airports across 62 cities. With global air travel expected to double by 2035 and Asia the biggest driver of that demand, SATS is in a commanding position to take advantage.
Over the last five years, the firm, through its strategic partnerships and growth in existing operations, has managed to grow its profit attributable to shareholders from S$180.4 million in FY2013/14 to S$261.5 million in FY2017/18.
In turn, the strong bottom line growth has enabled the company to increase its dividend to shareholders. Below is a graph illustrating the dividend per share and payout ratio over the last five years.
Source: SGX StockFacts
As you can see, dividend per share has grown from 13 Singapore cents in FY2014/15 to 18 Singapore cents in FY2017/18. This translates to an impressive 6.7% compounded growth over that time. The payout ratio has also been consistently below 80%, which means that barring any unforeseen earnings decline, the company will most likely be able to sustain its dividends.
At the time of writing, shares in SATS exchanged hands at S$4.93 per share. That translates to a price-to-book ratio of 3.3, a price-to-earnings ratio of 21.1 and a tasty dividend yield of 3.7%.
Hongkong Land Holdings Limited (SGX:H78)
Hongkong Land is a property investment, management and development group. It has a main listing on the London Stock Exchange with secondary listings on Bermuda Stock Exchange and SGX. Hongkong Land’s history dates back more than 100 years, making it one of the longest running property companies listed in Singapore.
The group divides its business into two broad categories, namely, investment properties and development properties. The former refers to properties that Hongkong Land owns as long-term investments. It contributed 67.7% of the company’s US$1.46 billion in operating profit in 2017. This provides the company with stable rental income and consistent recurring income each year.
It has a portfolio of 12 commercial buildings and this includes some of the most valuable real estate in the heart of the city, a region known as Central. It also includes properties that are considered Grade “A” commercial buildings. With limited land supply in Hong Kong city centre, rental income from its portfolio has steadily increased over the years at an impressive annual rate of 5.5% from US$8.52 in 2008 to US$13.82 in 2017.
Through its strong rental income growth, Hongkong Land has managed to pay higher dividends to shareholders over the years. The company’s dividend per share has increased from 18 US cents per share in FY2013 to 20 US cents per share in FY2017. That translates to an annualised growth of 2.1%. As of FY2017, the group had a dividend payout ratio of just 48%. This gives it additional headroom to grow its dividend in the future.
At the time of writing, shares in Hongkong Land traded at US7.09 per piece. This gives its a price-to-book ratio of 0.47, a price-to-earnings multiple of 17.2 and a dividend yield of 2.7%.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has a recommendation on Singapore Exchange Limited, SATS Ltd and Hongkong Land Holdings Limited. Motley Fool Singapore contributor Jeremy Chia doesn’t own shares in any companies mentioned.