By buying an index fund, investors can approximate the average market return. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, Singapore Technologies Engineering Ltd (SGX:S63) shareholders have seen the share price rise 18% over three years, well in excess of the market return (9.2%, not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 12% in the last year, including dividends.
To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the three years of share price growth, Singapore Technologies Engineering actually saw its earnings per share (EPS) drop 2.4% per year. Based on these numbers, we think that the decline in earnings per share may not be a good representation of how the business has changed over the years. Since the change in EPS doesn’t seem to correlate with the change in share price, it’s worth taking a look at other metrics.
We doubt the dividend payments explain the share price rise, since we don’t see any improvement in that regard. And revenue growth isn’t impressive. It may be that a closer look at revenue trends can explain the share price.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
Singapore Technologies Engineering is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling Singapore Technologies Engineering stock, you should check out this free report showing analyst consensus estimates for future profits.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Singapore Technologies Engineering, it has a TSR of 34% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It’s nice to see that Singapore Technologies Engineering shareholders have received a total shareholder return of 12% over the last year. And that does include the dividend. That’s better than the annualised return of 3.9% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Keeping this in mind, a solid next step might be to take a look at Singapore Technologies Engineering’s dividend track record. This free interactive graph is a great place to start.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on SG exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.