Five Straits Times Index (STI) stocks that have consistently increased their dividends over the past five years are Sats, ComfortDelGro, Jardine Matheson, Jardine Strategic and Hongkong Land.
These five stocks make up almost 15 per cent of the STI weight and averaged a dividend yield of 3 per cent last year, said a MyGateway report from the Singapore Exchange last week.
While the dividend yields of the two Jardine companies and Hongkong Land are lower than the STI's yield of 3.1 per cent last year, the trio's average dividend per share has gradually increased at a compound annual growth rate of 5 per cent over the past five years, in line with the STI.
A company may increase its dividend for various reasons, possibly as a result of a rise in its net profit.
However it could also be the case that the company is rewarding shareholders on windfall returns or distributing disposal proceeds.
A company may also choose to reinvest less and instead pay out dividends for a variety of reasons.
Compound annual growth rate, over the past five years, of the average dividend per share for Jardine Matheson, Jardine Strategic and Hongkong Land.
For example, it might wish to consolidate and reassess its market position before committing further funds for expansion, or it might choose to postpone major capital expenditures due to unfavourable financing rates.
Another possible reason the company might increase its dividend payout is to attract further equity investments.
Among the 30 STI constituents excluding the three real estate investment trusts, these five companies have consistently distributed higher dividends per share over the past five years.
The absolute dividend per share distributed is used rather than dividend yield as the latter is affected by stock price movement.
Investors should also evaluate whether a company can sustain its dividends. The dividend payout ratio is a common metric used to evaluate this ability.
A dividend payout ratio that consistently exceeds 100 per cent is not sustainable.
Sats provides gateway services and food solutions in Singapore, Japan and internationally.
Jardine Matheson is a conglomerate that engages in motor vehicles, property investment and development, food retailing, home furnishings, engineering construction and transportation businesses.
Jardine Strategic is a subsidiary of Jardine Matheson and operates in similar business segments as the latter.
Hongkong Land is a subsidiary of Jardine Strategic and engages in the investment, development and management of real estate in Greater China, South-east Asia and internationally.
ComfortDelGro provides taxi services, public and charter bus services, as well as car rental and leasing services.