Most investors consider mature, slow-growing companies to be those that pay out a large portion of their earnings as dividends. But that can be a misleading – albeit mostly true – generalisation.
I previously shared three shares that have been growing their earnings per share (EPS) at double-digit growth rates and yet dole out a significant chunk of those earnings to shareholders as dividends.
The beauty of these shares is that investors can benefit from both capital gains – as the shares rise in price along with EPS growth – as well as rising dividends.
Let’s take a look at three shares that have grown their EPS by more than 15% per year for the past five years and yet sport dividend pay-out ratios of more than 40%
1. ARA Asset Management (SGX: D1R) – Price: $1.85; Trailing Price-Earnings (PE) Ratio: 22.5; Trailing Dividend Yield: 2.5%
ARA manages private real estate funds as well as Real Estate Investment Trusts (REITs). Some local REITs under ARA’s care include Suntec REIT (SGX: T82U) and Fortune REIT(SGX: F25U).
Since the company’s debut on the Mainboard Exchange on November 2007, its assets under management (AUM) have doubled from S$11.5b in 2008 to S$22.7b as of March 2013. That has been good news for shareholders as part of ARA’s revenue stream stems from the gross property values of the various REITs and funds it manages, which tends to increase in tandem with AUM.
ARA’s EPS has increased by more than 18.6% annually from 2008 to 2012 while dividends have grown by 10.6% per year. The company does not have a fixed dividend policy, but as part of its capital management policy, the Board of Directors “monitors the level of dividends to ordinary shareholders” in addition to “monitor[ing] the return on capital” of the business.
In any case, ARA’s dividend pay-out ratio has never dipped below 50% over the past five years, as seen in the chart below.
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