Who doesn’t love dividends? Beyond the regular dividend, some companies occasionally provide investors with a nice bonus by issuing a special dividend for a particular year.
For instance, Haw Par Corporation Ltd (SGX: H02) paid out a special dividend of S$1 per share earlier this year. Special dividends provide a welcome surprise for those of us who depend on their investments for income.
Although management has the final say on issuing a special dividend, investors can increase their chances of receiving special dividends by investing in companies that have the financial capacity to provide shareholders with these one-off rewards.
Companies able to do so usually (1) have plenty of cash on their balance sheet, (2) have low cash requirements for their business, and (3) are continually generating free cash flow, thereby increasing their cash position. I did a simple screen to find stocks that fit this mold.
This vehicle inspection service provider is no stranger to special dividends. In fact, VICOM Limited (SGX: V01) paid out a special dividend of 8.62 Singapore cents per share for its full-year 2018 earnings. VICOM has a stable business that consistently generates plenty of free cash flow.
More importantly, VICOM has a pile of cash on its balance sheet that should give it the ability to pay out another special dividend. As of 31 March 2019, VICOM had S$112.8 million sitting in the coffers. It also generated S$8.7 million in free cash flow in the first quarter of 2019.
As VICOM’s business shouldn’t require so much cash on its balance sheet, it could potentially continue dishing out special dividends for the next couple of years — until its cash position is more in line with business requirements.
Hour Glass Ltd
Luxury watch retailer Hour Glass Ltd (SGX: AGS) increased its dividend from 2.5 Singapore cents in the year ended 31 March 2018 to 3.5 Singapore cents in the year ended 31 March 2019. However, based on its financials, there is still plenty of room for the group to dish out even more dividends in the future.
As of 31 March 2019, Hour Glass had a whopping S$180.9 million in cash and equivalents and just S$14.9 million in borrowings. For the 12 months prior, the group also generated S$46.9 million in free cash flow, further adding to its cash position.
In the last five years, Hour Glass’ net cash position has increased from S$37 million to S$166 million. Moreover, Hour Glass is a mature business that’s not rapidly expanding its network of outlets. As such, the company is clearly in a great position to dish out a special dividend to investors if it so wishes.
Cortina Holdings Limited
The third company on this list is another luxury watch retailer: Cortina Holdings Limited (SGX: C41). The specialised watch retailer has a network of more than 20 outlets around the region. Like Hour Glass, Cortina has a healthy net cash position of S$57.3 million. It also generated S$80.2 million in free cash flow last year.
Cortina has managed to sustain a healthy profit since it was founded some 20-plus years ago and is now riding on the recovery of the luxury watch industry. All things considered, Cortina could be another stock that could provide a welcome surprise in the next few years.
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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 Jeremy Chia owns shares in Hour Glass Ltd. The Motley Fool Singapore has recommended shares of VICOM Limited and Haw Par Corporation Ltd.