In a changing world, it’s hard to find stocks that will last the test of time. Technology is advancing at a rapid pace. Companies that are unable to embrace change and grow with the times may find themselves becoming obsolete. As such, it is getting increasingly difficult to find stable stocks that we can count on for the long-term.
However, I believe I have found two companies that fit the bill. These two companies have: (1) a long track record of stable earnings and cash flow; (2) businesses that are likely going to be required years from now; and (3) been willing to return excess returns to shareholders.
Dibs on DBS
Singapore’s largest bank, DBS Group Holdings Ltd (SGX: D05) is one of my top picks to buy and hold for the long-term. Established in 1968, DBS has grown to become Singapore’s most valuable listed company at a market capitalisation of S$63.5 billion.
The bank has shown remarkable consistency in the last decade, even managing to maintain a profit during the great financial crisis of 2008. Its book value per share has grown from S$9.79 in 2006 to S$18.53 as of June 2019. That translates to a decent annualised growth rate of around 5.5% per annum.
That is even more impressive when you consider the fact that DBS has paid a dividend each year during that period.
Just as importantly, DBS has maintained a conservative liquidity position, with its common equity tier 1 capital adequacy ratio, a metric used to assess a bank’s financial health, standing at 14.1%, well above the 6.4% regulatory requirement. Its strong financial position puts it in a commanding position to see out any near-term financial crunch.
The bank is also not taking its market-leading position for granted. It has invested heavily in marketing, maintaining its position as Singapore’s most valuable brand in 2018. It has also invested in digitalisation and has positioned itself well against the threat posed by the opening of digital banks in Singapore.
So far this year, the bank’s return on equity has risen to a multi-year high, demonstrating its efficiency in maximising shareholder value.
Driving up your dividends
If you are looking for a company that will pay you a dividend for years to come, look no further than VICOM Limited (SGX: V01).
VICOM provides vehicle inspection services in Singapore. It is in a dominant position in its industry, operating seven of the nine vehicle inspection centres in Singapore.
The beauty of VICOM’s business is that vehicle inspections are required by law. All cars older than three years need to go through a vehicle inspection once every two years, while cars older than 10 years have to go through annual inspections.
Due to these requirements, VICOM’s business is effectively recession-proof. In fact, VICOM might even thrive in a recession as car owners might decide to extend the car’s certificate of entitlement beyond the 10-year mark, instead of paying exorbitant prices for a brand new car.
VICOM’s business is also cash-generating. In the first quarter of the year, VICOM generated S$13.9 million in free cash flow and had S$88.98 million in net cash.
As such, VICOM is in a great position to keep paying out those sweet dividends to investors. The company recently increased its dividend payout ratio to reward patient shareholders and has even been paying out a special dividend to return some of the excess capital back to investors.
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 DBS Group Holdings Limited and VICOM Limited. Motley Fool Contributor owns shares of DBS Group Holdings Limited.