Investors always want more dividends. This is why dividend-paying companies are so popular — they represent a cash return on our investment from profits generated by the business. The hunt is always on for companies that not only pay regular and consistent dividends, but also companies that raise them over the years.
There are many reasons companies raise their dividends, but the most important one, in my view, is that the business is improving and generating more profit and free cash flow. This is the main reason great companies pay increasing dividends over time and can act as superb compounders of investors’ wealth. Another reason could be because the business generates excess cash flow that it does not require to maintain its business, and can thus pay out the rest as dividends.
Here are four companies that display a high probability of raising their annual dividends.
1. SBS Transit Ltd
SBS Transit Ltd (SGX: S61) is a leading bus and rail operator in Singapore. The group has a fleet of around 3,000 buses and also operates both the North-East MRT line and the Downtown MRT line.
For H1 2019, the group reported a rise in revenue of 5.4% year on year, while net profit jumped about 24% year on year to S$44.9 million. The interim dividend soared from 5.8 Singapore cents to 7.15 Singapore cents. With the business continuing to do well as a result of the new Bus Contracting Model, which frees SBS Transit from the need to own bus assets, there is a high chance the group will raise its final dividend, too.
2. VICOM Limited
VICOM Limited (SGX: V01) is Singapore’s leading provider of inspection and technical testing services. The group provides a comprehensive range of inspection and testing services in fields such as mechanical, biochemical, and civil engineering. VICOM also has the lion’s share of the vehicle inspection market in Singapore, at more than 75%.
The group reported steady growth in both revenue and net profit in its H1 2019 earnings report. Revenue rose 3.9% year on year while net profit increased by 4.9% year on year. The interim dividend was raised from 13.46 Singapore cents to 14.11 Singapore cents, and the group provided a sanguine outlook on the vehicle inspection division. Investors can look forward to a better final dividend if the business continues to grow.
3. Raffles Medical Group Ltd
Raffles Medical Group Ltd (SGX: BSL), or RMG, is a leading healthcare services provider. The group owns a hospital in Singapore and also a chain of clinics in Singapore and other Asian countries. In addition, RMG had just started operating a newly-constructed hospital in Chongqing, China, and will complete the construction of another hospital in Shanghai by early next year.
RMG’s financials remained resilient in spite of start-up losses from its Chongqing hospital, as the group’s core business in Singapore continues to churn out steady profit and cash flow. The group has raised its final dividend from 1.5 Singapore cents in 2016 to S$0.02 in 2018, and there is a good chance it will continue to raise it in 2019, barring unforeseen circumstances.
4. Singapore Exchange Limited
Singapore Exchange Limited (SGX: S68), or SGX, is Singapore’s sole stock exchange. SGX provides a platform for the trading of securities such as derivatives, equities, and fixed income. The bourse also provides listing and settlement services for listed companies.
SGX recently reported record revenue for FY 2019 (ended 30 June 2019) and its highest net profit in 11 years, yet kept its annual dividend constant at S$0.30. With its derivatives volume hitting new all-time highs, and with the bourse introducing a wider suite of products to cater to investors’ appetite for risk management, I foresee revenue and net profit will continue to climb. Hence, there is a high chance SGX will be able to raise its full-year dividend for FY 2020.
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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 SBS Transit Limited, VICOM Limited, Raffles Medical Group Ltd, and Singapore Exchange Limited. Motley Fool Singapore contributor Royston Yang owns shares in VICOM Limited, Raffles Medical Group Ltd, and Singapore Exchange Limited.
Motley Fool Singapore 2019