Most investors tend to fall into two camps: growth or income.
Typically, growth-centric companies reinvest profits generated to expand their market reach.
On the other hand, dividend-focused companies typically return cash generated back to shareholders in the form of growing dividends.
What if I told you that there are businesses that manage to do both – growing earnings and increasing dividend payments to shareholders?
We look at how ST Engineering (SGX: S63), or STE, could be one of those rare companies that combine both earnings and dividend growth.
Why Growth and Dividends Can Be a Powerful Combination
Owning companies that deliver strong earnings growth can seriously help to compound your capital faster.
Combining this accelerated capital appreciation with solid dividend growth from recurring cash flow can help further bolster your wealth.
Remember, your wealth grows from higher total returns through share price appreciation and dividends.
In assessing quality dividend growth stocks, we tend to favour names that can consistently grow both their revenue and earnings, on a per-share basis, at a steady clip.
Importantly, we should see healthy free cash flow conversion from earnings generated, paired with a healthy balance sheet and a sustainable payout ratio.
For companies to sustain healthy dividend growth, they first need to have solid underlying fundamentals.
ST Engineering Ltd
STE stands out with multi-year tailwinds across its key operating segments: commercial aerospace (CA), defence and public security (DPS), and urban solutions & satcom (USS).
All three industries are enjoying strong secular growth trends; the surge in global defence spending is expected to continue, especially given recent tensions in the Middle East.
The CA market is expected to post decent growth, supported by the continued recovery in air travel. Meanwhile, countries in the Asia-Pacific region are also increasingly digitalising their cities.
STE has done a fine job in capitalising on these market opportunities, growing its revenue at a decent compound annual growth rate (CAGR) of 11.5%, reaching S$12.3 billion over the last five years.
With the trillions in market opportunities across all three segments, STE’s best days are still ahead.
Crucially, we see STE posting growing profitability; operating income has compounded faster at a 13.0% CAGR with margins increasing from approximately 8% to 9.3% over the same period.
Additionally, return on equity (ROE) remains solid at 15.8%.
That said, net profit and earnings per share (EPS) were held back over the past few financial years as STE divested non-core operations, including LeeBoy in September 2025 and its 51% stake in SPTel in November 2025.
The picture is changing: in 1Q2026, net profit growth outpaced rebased revenue growth.
The defence provider has also proven its mettle as a reliable income provider, with uninterrupted annual dividends paid since 2009.
Encouragingly, STE’s dividends are well covered by its free cash flow generation which stood at S$1.1 billion for the financial year ending 31 December 2025.
Turning to the balance sheet, the group held S$576 million in cash and cash equivalents as at 31 December 2025.
What Could Drive the Next Phase of Growth?
The next phase of growth for STE is likely for the group to continue winning new contracts across all three segments, adding to its substantial order book, which stands at S$34.5 billion as of 31 March 2026.
It is also fair to expect possibly additional operational efficiencies, leading to greater profit generation as STE continues to capitalise on the multi-trillion, multi-year tailwinds of its operating segments.
What Are the Risks?
The risks facing STE would include executional mishaps, intensified competition or an overstretched valuation.
A global economic slowdown would also hamper the group’s performance.
Even great businesses are not immune to investment risks.
Get Smart: The Best Dividend Stocks Often Start as Great Growth Stocks
The best long-term stocks win through a combination of consistent earnings generation and a healthy growing dividend.
Having a high yield is not a pre-requisite for long-term performance.
ST Engineering should be considered for long-term investors seeking both capital growth and income potential.
To build wealth that compounds over time steadily, investors should consider owning companies that combine both capital appreciation and dividend growth.
When the market is unpredictable, where can you park your money with confidence? Our latest FREE report reveals 5 Singapore dividend-payers built to withstand global storms. Get it now and see what’s still worth holding.
Follow us on Facebook, Instagram and Telegram for the latest investing news and analyses!
Disclosure: Wilson.H does not own shares in any of the companies mentioned.
