We all love dividends. I particularly enjoy how dividends are deposited into my bank account every quarter, six months, or year. Once I’ve done my research and pulled the trigger to add the right dividend stocks to my portfolio, I receive steady streams of income from my investments regularly. As a company grows, it will usually increase its dividends to shareholders. That is the essence of dividend investing — receiving passive income to support our lifestyle, build our retirement fund, or to buy more dividend stocks (for more dividends)!
So I took a look at the dividend stocks listed on Bursa Malaysia. I screened through the 200 largest companies and shortlisted those that have either grown — or maintained — its dividend every single year in the past decade. Companies that have been listed for less than 10 years were excluded.
Here are the top five Malaysian stocks that have paid a growing dividend over the last 10 years.
1. Apex Healthcare
Apex Healthcare manufactures, distributes, and sells pharmaceutical and over-the-counter consumer healthcare products primarily in Malaysia and Singapore. In 2019, 97.9% of its revenue was obtained from these two countries. Apex’s business activities consist of three operating segments:
- Manufacturing and marketing
- Wholesale and distribution
In the manufacturing and marketing segment, Apex produces and sells generic drugs and consumer healthcare products such as Bena expectorant and AGNESIA hygiene care powder. The wholesale and distribution segment brought in 90.5% of the total revenue in 2019 but it has a much lower profit before tax margin than the first segment. Apex distributes both in-house and external products in this segment. The corporate segment is the smallest and consists of only two retail pharmacies in Melaka and Johor.
Apex passed our test with flying colours as it managed to increase its net dividend per share (DPS) every single year in the past 10 years. Its 9M 2020 revenue and net profit increased by 3.7% and 1.7% respectively year-on-year. Thus, the growing dividend streak is likely to maintain given that dividend payout ratio has averaged at 40.8% in the past 10 years. There is still room for its dividend to grow.
|Net DPS (in sen)||1.40||1.58||1.95||2.00||2.38||2.75||2.88||3.00||3.38||3.70|
2. Public Bank
Public Bank is the third largest bank in Malaysia in terms of asset size. It offers a wide range of financial services to customers including personal banking, stockbroking, as well as sale and management of unit trust funds. It earns interest income from different types of loans such as property and vehicle financing. It also makes money from services charges and fees such as card annual charges and unit trust management fees.
The bank is often referred to as the most efficient bank in Malaysia. It has strict cost controls as evident from its low cost-to-income ratio compared to its peers. It has good asset quality and is prudent in lending money to customers as shown in its much lower gross impaired loans ratio when compared to the industry.
Here is a brief snapshot of Public Bank’s performance against the Malaysian banking industry in the first nine months of 2020:
|Public Bank||Industry average|
|Gross impaired loans ratio||0.3%||1.4%|
|Return on equity||11.3%||9.5% (2019 )|
As Bank Negara Malaysia cut the Overnight Policy Rate (OPR) by 125 basis points from 3.00% to 1.75% in 2020, Public Bank’s 9M 2020 operating revenue and net profit dropped by 8.3% and 9.3% year-on-year respectively. In general, a lower OPR means banks charge their customers a lower lending rate which lowers their profits from lending activities. As at the point of writing, the bank has yet to announce its full-year financial results and dividend. As the bank’s dividend payout ratio has averaged 46.5% in the past decade, Public Bank can comfortably grow or maintain its dividend as its fundamentals remain solid.
|Net DPS (in sen)||9.10||9.60||10.00||10.40||10.80||11.20||11.60||12.20||13.80||14.60|
3. Nestlé Malaysia
Nestlé Malaysia (market cap: RM31.6 billion) owns a wide variety of well-known household brands in Malaysia like Nescafé, Maggi, and Milo. The company manufactures and sells food and beverage products to consumers through its large number of touchpoints including supermarkets, convenience stores, mom-and-pop stores as well as coffee shops. Their products can be readily bought or consumed by consumers in both urban and rural areas across the country.
Most importantly, all its products are halal-certified and it has managed to build a Nestlé brand that is trusted by Malaysians for its quality and safety. In 2019, it obtained 80.4% of its revenue from Malaysia and the remaining revenue from exports to over 50 countries.
Nestlé Malaysia paid almost all its profits as dividend to shareholders in 2019. Since its 9M 2020 net profit declined by 19.3%, its dividend in 2020 will likely follow suit. The COVID-19 pandemic could be a short-term headwind for Nestlé Malaysia as it strives for more in-home consumption of its products to boost sales.
|Ordinary DPS (in RM)||1.65||1.80||2.10||2.35||2.35||2.40||2.70||2.75||2.80||2.80|
4. QL Resources
QL is a conglomerate that operates mainly three main business activities — marine products manufacturing, integrated livestock farming, and palm oil activities. It has a business presence mostly across Malaysia, Indonesia, and Vietnam. It also operates the FamilyMart convenience store chain in Malaysia. Ready-to-eat food such as surimi-based products is partly sourced from the three upstream segments and served in convenience stores.
The company sells animal feeds, chicken parts, and eggs through its integrated livestock farming segment. In 2020, this segment was the largest contributor in terms of revenue while the marine products manufacturing segment brought in the highest profit before tax. This segment consists of deep-sea fishing, aquaculture farming as well as surimi and fishmeal production activities.
Although QL did not increase its dividend every single year, the dividend has never dropped and nearly doubled over the past decade. While it managed to emerge largely unscathed from the COVID-19 pandemic, it recorded a flattish year-on-year 1H 2021 results. The growth in the marine product manufacturing segment was offset by the contraction in the integrated livestock farming segment.
|Ordinary DPS (in sen)||1.67||1.77||1.77||1.79||2.18||2.18||2.18||3.00||3.00||3.00|
5. Lingkaran Trans Kota Holdings
Lingkaran Trans Kota Holdings (LITRAK) operates and maintains two tolled highways in the Klang Valley, namely Lebuhraya Damansara-Puchong (LDP) and Western Kuala Lumpur Traffic Dispersal Scheme (SPRINT) Highway. The company collects toll fares from each vehicle that passes through its toll plazas and spends them on maintaining road safety and infrastructure.
LITRAK’s revenue will grow if toll traffic volume continues to increase in the future. Two toll hikes are scheduled along two stations on the SPRINT Highway in 2022. Compensations will be made by the Malaysian government to the company accordingly if the government decides to freeze any hikes in toll fares.
|Ordinary DPS (in sen)||17.00||17.00||17.00||17.00||20.00||25.00||25.00||25.00||25.00||25.00|
The company’s business sustainability remains a concern because the concessions of these two highways will expire between 2030 and 2034. Questions were raised by shareholders during the recent AGM but the management did not seem very ambitious or active in acquiring new or similar businesses. Both highways will be handed back to the government without any additional compensation after the concessions expire.
The fifth perspective
Although these five companies come from different sectors ranging from financial services to healthcare, they have managed to increase or maintain their dividend every year in the past 10 years.
Some companies like KLCC Stapled Group were dividend aristocrats in the past but were impacted by COVID-19 and cut their dividend in the latest financial year. Therefore, they did not make the list above. Some of them may be affected in the short term but the fundamentally-sound ones with solid growth drivers will still do fine taking a long-term perspective.
At the same time, these five winners were included since they ticked all the checkboxes within the 10-year timeframe that coincided with a market bull run. Apex and Public Bank may not have passed the criteria if gross dividend per share was used as a measure instead. Also, past performance may not be indicative of future performance. There is no guarantee that these companies will continue to increase or maintain their dividend in the future. Therefore, a keen understanding of company’s business model and industry is key when it comes to picking the best dividend-growth stocks to invest in for the long term.
Finally, just a quick reminder: 2021 applications for Dividend Machines are closing on Sunday, 14 March 2020, at 11:59 p.m. If you’re looking to learn how to invest in dividend stocks and REITs and build multiple streams of passive dividend income, then we urge to check out Dividend Machines before it closes.
Happy investing and we hope to see you on the inside! 🙂