1300 SMILES Ltd (ASX code: ONT)

By Jason Fittler

At the current share price of around $2.50, ONT is trading at over three times its 2005 issue price.

How many other companies can you name, which are trading at a price higher than they were in 2005? You probably can't think of any. Many major companies are trading at around HALF their 2005 prices.

ONT's share price has stayed solid because the company's performance has been outstanding.

You all know that reported profits are sometimes little more than opinions, but CASH IS FACT. ONT's cash dividends have grown magnificently, global financial crisis or not.

The dividend grew from 3.8c per share in 2005 to 9.5c in 2008 (compound annual growth of 35% p.a.). The first dividend for the 2009 year took another big jump to 5.4c for the first half (up 35% on the previous year), so the full year dividend looks set to equal or exceed 11c. All of these dividends are of course fully franked, giving your real return a big kick forward.

In the first half to December 2008, ONT's profit was up 83% on a revenue increase of 58%. This in the teeth of the worst financial crisis of our generation. Dentistry, done right, is the sort of business which rides out periods of uncertainty with ease.

Over the past year, ONT's revenue and profit have grown gigantically, while the share price is almost unchanged. This means the risk has decreased dramatically: you can buy the same future income stream for the same price as last year, starting at a higher profit level and after another year's successful operation.

Because ONT has been profitable in every period, it has rarely needed to raise new capital, and doesn't need any now. As a result, it has never issued many shares and has a relatively small shareholder base.

On an 11c dividend, the yield at $2.50 would be 4.4%. That's a gross yield of 6.28%, to start, enough to make your investment self-financing if you use borrowed money.

I expect the dividend to continue its stunning growth.

This company is due to report in August, I fully expect to see a positive report. This is a small company you can get into on the ground floor.

You can hold this one just for the dividend but growth will happen. I do not know when, but it will happen.