Venture Corporation Ltd (SGX: V03) and Hi-P International Ltd (SGX: H17) both operate in the “Electronic Equipment, Instruments and Components” industry as categorised by the GICS Industry Classification.
Since the two companies pay dividends and could interest income investors, which would give more bang for your buck? To help answer that, let’s compare the dividend yields, dividend historical growth rates, and dividend payout ratios of the two firms.
Venture’s share price closed at S$15.03 on Monday (12 November), giving the company a trailing dividend yield of 5.3%. On the other hand, Hi-P had a trailing dividend yield of 6.1% with a share price of S$0.825 at the close of trading on Monday.
The above shows that Hi-P has a better dividend yield than Venture.
Dividend growth rate
The dividend yield tells us what a company has paid over the last 12 months, and it is useful information. However, we should also be looking at how the company’s dividend has changed over time, preferably over the last five years or more.
Venture’s dividend has grown by 4.7% per year from S$0.50 per share in 2013 to S$0.60 per share in 2017.
As for Hi-P, its dividend had climbed by 154% annually from S$0.006 per share in 2013 to S$0.25 per share in 2017. In 2017, Hi-P paid out an interim dividend per share of S$0.19 in the second quarter, which looks like a one-off dividend to me. Excluding this dividend, Hi-P’s dividend from 2013 to 2017 would have grown by 77.8%, which is still commendable.
In terms of dividend growth, Hi-P has the upper hand over Venture.
Dividend payout ratio
Beyond the trailing dividend yield, we should also assess whether a company can maintain or grow its current dividend in the future. To do that, we can compare the company’s free cash flow to the amount in dividend that it pays.
I prefer a company to have a dividend payout ratio (dividend as a percentage of free cash flow) of less than 100% because it leaves some room for business slowdowns in the future.
In 2017, Venture’s free cash flow was S$411.6 million, and its dividend for the year totalled S$170.9 million. This translates to a dividend payout ratio of 41.5%.
In comparison, Hi-P’s payout ratio was 88.3%, given its free cash flow and dividend payment of S$228.6 million and S$201.9 million, respectively, in 2017. The dividend payment amount includes the 2017 second-quarter interim dividend.
A Foolish takeaway
By looking at the three factors above, I can conclude that Hi-P is the more attractive dividend share with a higher dividend yield and far superior dividend growth rate.
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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 Sudhan P doesn’t own shares in any companies mentioned.