The Motley Fool

This Company Has Grown Its Dividends by 18% and Share Price by 15% Annually for the Past 15 Years

One of the traits income investors look out for is consistently increasing dividends over the long-term. Such a track record shows that the company is doing things right and could continue to grow its business for shareholders.

One such firm that has been helping investors grow their passive income is Micro-Mechanics (Holdings) Ltd (SGX: 5DD), which is involved in the semiconductor industry.

The company’s dividends have climbed from 0.8 Singapore cents per share for its fiscal year ended 30 June 2003 (FY2003) to 10.0 cents in FY2018, giving an annual growth rate of 18.3%. The following shows Micro-Mechanics’ dividend growth for the past 15 years:Source: Micro-Mechanics FY2018 annual report

The company went public at S$0.23 per share in June 2003, and it closed at a share price of S$1.82 yesterday. Thus, the total return (capital gains plus dividends received) would be an even more impressive 33% per year. This return would be higher if I were to include the one-for-four bonus share issue that occurred in 2005.

So, what’s behind the massive growth in both Micro-Mechanics’ dividends and share price (which is a function of business growth in the long-term)?

The company’s consistent track record of growing its business steadily is the reason for the high total return. From FY2003 to FY2018, Micro-Mechanics had grown its bottom line by around 13% annually. Together with the climb in earnings, the company could afford to pay increasing dividends.

The following shows Micro-Mechanics’ financial highlights from FY2014 to FY2018:Source: Micro-Mechanics FY2018 annual report

All the metrics shown above, especially revenue, gross profit and net profit, have all climbed for the past five financial years. Commendably, net profit has grown by 22% on a yearly basis.

Micro-Mechanics ended FY2018 with a strong balance sheet of S$21.1 million in cash and zero debt. It had a return on equity (ROE) of 28.4% in the same year. Generally, a company that has a history of generating decent ROE while having no debt has a high chance of possessing durable competitive advantages.

Coupled with the company’s increasing net profit margin over the years and the long-term industry tailwind, Micro-Mechanics seems to be a great business for investors to consider for their portfolio.

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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 recommended shares of Micro-Mechanics. Motley Fool Singapore contributor Sudhan P owns shares in Micro-Mechanics.