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When it comes to dividend consistency, not many companies can claim to be able to maintain and sustain its dividend per share (DPS) over the years. This is because economic conditions have an impact on businesses and cause profits and cash flow to rise and fall. During lean years, it is not unusual for a company to reduce its dividend in order to conserve cash.
Hence, many companies may not pay out stable, increasing dividends as they end up being buffeted by external headwinds. In fact, it’s tough to even find businesses that can increase its dividends for ten consecutive years, but one company – CK Infrastructure Holdings Ltd (SEHK: 1038), or CKI, has managed to raise its dividend for a stunning 22 consecutive years!
I thought it would be worth my time to dig into exactly how CKI has managed to achieve this marvellous feat.
A global infrastructure powerhouse
CKI’s principal business is in the development, investment and operation of infrastructure businesses in Hong Kong, China, the UK, Australia, New Zealand, and Canada. The group owns a variety of infrastructure assets ranging from power stations and pipelines in Australia to toll roads in Hong Kong and China.
These assets generated a stable and predictable regulated return for the group and are generally considered recession-resistant as they provide essential services to the public, whether it be electricity, water or transportation.
Source: CKI Annual Report 2018
As a result of this predictability, CKI has managed to generate stable and consistent cash flows over the years and hence also pay out an increasing dividend to investors. The chart above shows the amazing 22-year consecutive increase in dividends.
CKI paid out just HK$0.16 per share in 1996, but this has multiplied by 15x over 22 years to HK$2.43 paid out in FY 2018. Assuming an investor had held on to his shares since 1996, he would have been richly rewarded with both increasing dividends and an increase in the share price. The trailing 12-month dividend yield stands at around 4.4%.
A consistent string of quality acquisitions
Just how did CKI manage to consistently grow its dividends with such an impressive track record? One of the key drivers to its sustained business growth is through strategic acquisitions of quality assets over the years.
Source: CKI Annual Report 2018
As can be seen above, in the last 18 years, there has been an average of around 1.5 acquisitions per year. The group has also embarked on geographic expansion in order to achieve its current scale of operations, and these core assets provide steady cash flows to sustain many more years of dividends.
Long-term development strategy
CKI has outlined its long-term development strategy which involves three key pillars. The first is to nurture organic growth from the group’s existing portfolio by optimising business performance and implementing global best practices.
The second is to continue its acquisition trail to add on more quality assets that provide strong, recurring returns to CKI’s portfolio.
Finally, management has communicated its intention to maintain a healthy balance sheet with low gearing that will support the group’s long-term growth plans and also maintain low funding cost from Standard and Poor’s “A/Stable” rating.
With these plans in mind, investors can look forward to possibly many more years of increasing dividends from the group.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Royston Yang doesn’t own shares in any companies mentioned.