As an investment writer, I sometimes get questions from my friends asking about which company that can help them double their money.
My answer is always – how long can you wait? If the answer is anything less than three years, I will avoid giving any suggestion. But if the answer is more reasonable – say between five to ten years, then I might share a company that has the potential to deliver 100% returns in the next few years.
Our FREE SGX stock pick!
Recently, I shared with a friend of mine about a company that is well positioned to deliver such returns in the next five years, which I will discuss in this article.
But first, let’s look at some basics.
How to make money in the stock market
In general, there are two ways an investor can make money in his stock investment: 1) through dividend income; and 2) through increase in share price. The latter is driven mainly by growth in underlying business and valuation expansion.
In short, investors should always focus on dividend, growth and valuation expansion when assessing the potential return of his investment.
So which company is well positioned to turn S$1 of investor’s capital into S$2 in the next five years? The candidate is Hongkong Land Holdings Limited (SGX: H78).
For those who are not familiar with the company, Hongkong Land is mainly involved in the property development, investment and management business. Its property businesses are spread across China, Southeast Asia and in its home base of Hong Kong.
So how can Hongkong Land deliver a 100% return in the next five years? The answer is through all three avenues mentioned above which are dividend income, growth in business performance, as well as potential increase in its valuation. Let’s get into some numbers below:
Firstly, investors of Hongkond Land will likely receive dividend from the company in the foreseeable future, especially given its solid dividend track record. Here’s some numbers:
From 2008 to 2018, dividend per share (DPS) grew from US$0.15 to US$0.20. To put it into perspective, DPS has grown by 33% during the period. Thus, assuming that Hongkong Land can sustain its business performance, investors can expect a stable or sustainable increase in dividend payment in the next few years.
For the sake of prudence, we will assume that Hongkong Land pays out the same dividend per share of US$0.20 in the next five year, which will total US$1. At current share price of US$7.10 (as of writing), this translates to a dividend return of 14% for the next five years.
From the above, we looked at how dividend can contribute towards the return from investing in Hongkong Land. In a second article, I will explore why Hongkong Land’s share price might appreciate in the next few years. (Editor’s note: The second part of the article has been published and it can be found here.)
Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.
The Motley Fool’s purpose is to help the world invest, better. Like us on Facebook to keep up-to-date with our latest news and articles.
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. Motley Fool has a buy recommendation for Hongkong Land Holdings.