As a passive income investor, one of the main objective is to look at dividend growth stock that can give us passive return that well compensates our need. Some may be comfortable at 4% yield while others may require 7% yield. But all in all, a company that can increase their dividends over time will be one that investors seek for and it can help us achieve our goal at a faster rate.
Dividend increases usually mean that the company are doing well and they are returning excess earnings to shareholders in the form of dividends. They usually play a huge part in the investor's cash flow for years to come.
Consider Vicom for example, the company's earnings have been growing steadily over the years and so does its dividends. They are comfortable doing this not only because earnings have increased but also because their payout is relatively low compared to others. Thus, in times when earnings might be affected, they are able to use the excess earnings that is retained to give a higher payout to investors in the form of dividends. Here are the figures for the past 5 years from 2008 to 2013.
| Vicom | Dividend per share | % Growth |
|---|---|---|
| 2009 | 0.118 | 26.9% |
| 2010 | 0.162 | 37.3% |
| 2011 | 0.176 | 8.6% |
| 2012 | 0.182 | 3.4% |
| 2013 | 0.225 | 23.6% |
Consider another example, ST Engineering. Their returns in dividends over the past couple of years have been in the single digit growth though decent for the past 3 years. One thing investors need to take note though is that ST Eng payout is in the range of 90% so the company does have very little earnings retained for further growth. Dividend growth for the company are dependent on the earnings which gives a vicious cycle of how is the company going to grow growth if earnings retained are small.
| ST Eng | Dividend per share | % Growth |
|---|---|---|
| 2009 | 0.158 | -11.7% |
| 2010 | 0.133 | -15.8% |
| 2011 | 0.146 | 9.8% |
| 2012 | 0.155 | 6.2% |
| 2013 | 0.168 | 8.4% |
What about Reits then? Investors would know that Reits tend to payout more than 90% earnings to investors and have very little earnings retained. Thus any acquisition or improvement in yield would need to be funded via debt or equity which gives a vicious cycle to investors especially if the acquisition is not yield accretive. So the structure Reit investors can expect is dividends, more funding, higher earnings, more dividends, more funding and so on...
A few other companies which I have not looked closely at probably fits into the above criteria as well. Jardine, Banks, Keppel are probably a few of those that have increase dividends over time. Perhaps, we should be looking closely at this. Dividend increases over time can really help you and I achieve our goal together and ...faster.
