Investors are normally segregated into two main categories — those more oriented towards growth, and those who prefer yield. Growth companies usually pay out a small amount (or none) of their profit as dividends, instead of reinvesting that cash back into growing the business, while yield companies are often more mature and generate cash flow in excess of what the business requires.
I look for that sweet mix of both growth and yield, as I am neither too keen on pure growth (which comes with its own set of risks and does not pay any dividends) nor too enamoured with yield alone (as my portfolio’s value will surely stagnate). To be fair, investors like myself who go for such companies usually have to compromise on passive income — yields on such growth companies tend to be fairly low.
This is why I look for dividend champions with an element of growth. The upward climb in dividends over the years along with growth in the underlying business provide a double bonus to the shareholder. Here are two companies I think fit this bill.
1. Frasers Centrepoint Trust
Frasers Centrepoint Trust (SGX: J69U) is a REIT that invests in suburban retail properties in Singapore. Its portfolio consists of six retail malls: Causeway Point, Northpoint City North Wing (including Yishun 10 Retail Podium), Anchorpoint, YewTee Point, Bedok Point, and Changi City Point. In May 2019, FCT proposed to acquire a 33.3% stake in Waterway Point (located in Punggol) for S$433.3 million. Once the deal is finalised, the REIT’s portfolio will include seven malls. The REIT’s sponsor is Frasers Property Limited (SGX: TQ5).
FCT qualifies as a dividend champion as it has shown an impressive track record of raising dividends every single fiscal year over the last 10 years, as shown in the table above. Using FY 2019’s first-half dividends as a guide and annualising them, the projected FY 2019 distribution per unit (DPU) is around 12.31 Singapore cents, and the forward dividend yield is around 4.6%.
The REIT has also demonstrated its ability to grow not just its DPU, but also its asset base over the years. With the impending acquisition for Waterway Point, the REIT’s asset base and DPU will continue to rise. Positive rental reversion of 2% will also underpin the rise in rental rates, which should continue to drive growth for unitholders.
2. VICOM Limited
VICOM Limited (SGX: V01) provides a comprehensive range of testing and inspection services in fields such as mechanical, biochemical, civil engineering, and non-destructive testing. It is also the market leader in the provision of vehicular testing and inspection services, with a market share exceeding 75%. ComfortDelGro Corporation Limited (SGX: C52) owns a 67.1% in VICOM.
VICOM has increased its dividends significantly over the last 10 years, as shown in the table above, and can also be classified as a dividend champion. From 9.25 Singapore cents in 2008, VICOM has increased its total dividend payment by almost 500% to 45.25 Singapore cents in 10 years, which is a very impressive rate of growth. The group’s shares offer a trailing dividend yield of 6.5%.
The group is not resting on its laurels, though. In September last year, it announced the purchase of a property at 531 Bukit Batok Street 23 to replace SETSCO’s present premises at Teban Gardens. The non-vehicular testing and inspection division is also continually upgrading its capabilities and skillsets to be able to handle more complex and comprehensive types of inspection, thereby expanding the potential range of clients it can service.
The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore has recommended shares of VICOM Limited and Frasers Centrepoint Trust. Motley Fool Singapore contributor Royston Yang owns shares in VICOM Limited.