It’s no big secret.
Companies that enjoy rising profits and cash flows have the means to raise their dividends in tandem.
And income-seeking investors can enjoy the best of both worlds when they own such businesses.
Not only do they enjoy a stream of rising passive income, but as the business becomes more valuable, its share price should also move up, ushering in capital gains.
Finding such investments promises to be very rewarding, but only if you have the patience to hold on to the shares to enjoy the fruits of your labour.
The key is to stay focused on how the company is performing and what plans it has for the future.
Dividend increases are not a guarantee, and no one in the market has a crystal ball.
But if we observe the track record of dividend increases and compare this with the company’s profit and cash flow growth trajectory, it’s possible to make a reasonable assumption that dividends will continue to rise.
Here are three companies that have great potential for raising their dividends.
DBS Group (SGX: D05)
DBS is Singapore’s largest local bank and provides a comprehensive range of banking services for both individuals and corporations.
The blue-chip lender has a presence in 18 markets and was recently named the world’s best bank and best digital bank by Euromoney.
The group has performed well despite the tough conditions, reporting a record net profit of S$3.7 billion for its fiscal 2021 first half (1H2021).
Investors were also treated to more good news as the Monetary Authority of Singapore lifted dividend restrictions on the local banks in light of an improving global outlook.
Because of this, DBS restored its quarterly dividend to S$0.33 per share, up from S$0.18 a year ago.
The bank has embarked on a series of business initiatives to diversify its revenue sources as net interest income comes under pressure from low-interest rates.
In July, DBS and Temasek Holdings announced the establishment of a US$500 million growth debt financing platform for Asia’s growth-stage technology companies known as EvolutionX.
EvolutionX will provide another financing solution for companies to help accelerate their growth.
DBS is also working with Temasek and investment bank JP Morgan (NYSE: JPM) to establish an open platform to eliminate pain points for interbank payments. Known as Partior, it will leverage blockchain technology to reduce friction for cross-border payments.
Should the above bear fruit, it will bump up DBS’ profits and possibly lead to a rise in its quarterly dividend payment.
Keppel DC REIT (SGX: AJBU)
Keppel DC REIT is a data centre REIT that owns a portfolio of 19 data centres across eight countries.
The portfolio was valued at S$3.1 billion as of 30 June 2021.
Keppel DC REIT has reported impressive growth in its distribution per unit (DPU), up 12.5% year on year to S$0.04924 for 1H2021.
The REIT looks poised to boost its DPU further in the coming months with the completion of its Intellicentre 3 East Data Centre located in Melbourne, Australia.
This development was completed in July and a new 20-year triple-net lease commenced that should boost revenue and net property income.
In addition, Keppel DC REIT has also undertaken two acquisitions in the last two months.
The first was for a seven-storey data centre in Guangdong, China for around S$132 million, while the second involved the purchase of its third data centre in the Netherlands for around S$59.9 million.
The REIT’s aggregate leverage stands at 36.7%, allowing it ample headroom for future debt-funded acquisitions to boost its DPU further.
iFAST Corporation Limited (SGX: AIY)
iFAST is a financial technology company that runs a platform for the buying and selling of unit trusts, bonds and equities.
The business has seen tremendous growth in the last 18 months as the pandemic accelerated digital adoption and pushed more people to invest online.
The group’s assets under administration (AUA) has hit yet another record at S$17.54 billion as of 30 June 2021, while inflows stayed strong at S$2.1 billion for 1H2021.
As AUA soared, iFAST also reported a sparkling set of earnings.
Revenue jumped 37.8% year on year for 1H2021 while net profit surged by 94% year on year to S$15.8 million.
As a result, the group paid out an interim dividend of S$0.011, a 46.7% year on year increase from the S$0.0075 it paid out a year ago.
There may be more to come.
iFAST has informed investors that its recent prime subcontractor contract in Hong Kong is expected to be “very material” to the group.
Should earnings and cash flows rise sharply, it could signal yet another dividend increase for the fintech company.
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Disclaimer: Royston Yang owns shares of DBS Group, Keppel DC REIT and iFAST Corporation Limited.