Dividends are highly sought after by investors as they provide a healthy source of passive income. By studying a company and its dividend history, investors can arrive at conclusions as to the sustainability of the dividend and the attractiveness of the business. Some of the best companies in the world enjoy a growing dividend while also delivering great capital gains for its investors.
When sifting through companies, I like to focus on those with a good track record of paying dividends for a long period of time. Even though the dividend may not always be a rising one (as the business will encounter periods of economic ups and downs), investors are able to at least receive income while enjoying business growth at the same time.
One of the companies that has a long and steady track record of paying dividends is Singapore Exchange Limited (SGX: S68), or SGX.
A dividend stalwart
Source: Compilation by the author from SGX’s annual reports 2001-2019
SGX has demonstrated its ability to pay dividends over 18 consecutive years, no easy feat for any company. Investors should note that the dividends were much more volatile pre-2009, as this marked the year the Global Financial Crisis eased. SGX used to derive the bulk of its revenue from equities trading volumes, and the volatility within the stock market also resulted in dividends tracking SGX’s net profit, which fluctuated significantly over the years up till 2009.
Lower reliance on equities
After the crisis ended, SGX started to veer away from heavy reliance on equities trading volumes, as this made revenue and earnings volatile for the bourse. Instead, it shifted toward growing as a derivatives hub, with the eventual aim of transforming the group into a successful multiasset exchange that dealt with a variety of financial instruments. With less reliance on equities, SGX’s dividends subsequently also stabilised.
Steady quarterly dividends
As the group’s derivatives business grows, its dividends have also become steadier and more predictable. Though equities are seeing the securities daily average volume (SDAV) declining on a year-on-year basis, the slack has been more than picked up by the growth in derivatives. This has enabled SGX to continue to grow its revenue, while its net profit for FY 2019 has also hit an 11-year, post-crisis high. Dividends are also declared and paid quarterly, providing retirees with a great source of regular income.
Firing up its growth engines
Management is not sitting still, though. CEO Loh Boon Chye has been actively pursuing a strategy of increasing the breadth and variety of derivatives the bourse has to offer, and there are plans to come up with innovative products and solutions for traders and investors to manage their portfolios. With SGX recognised as a leader in providing multiasset solutions for investors, I am confident the group will be able to continue paying regular and even growing dividends.
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 Singapore Exchange Limited. Motley Fool Singapore contributor Royston Yang owns shares in Singapore Exchange Limited.