Stock Analysis

Centrepoint Alliance's (ASX:CAF) Dividend Will Be Increased To A$0.02

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Centrepoint Alliance Limited's (ASX:CAF) dividend will be increasing from last year's payment of the same period to A$0.02 on 29th of September. This will take the dividend yield to an attractive 9.6%, providing a nice boost to shareholder returns.

See our latest analysis for Centrepoint Alliance

Centrepoint Alliance's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. At the time of the last dividend payment, Centrepoint Alliance was paying out a very large proportion of what it was earning and 118% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Over the next year, EPS could expand by 74.3% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 49%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

ASX:CAF Historic Dividend August 28th 2023

Centrepoint Alliance's Dividend Has Lacked Consistency

It's comforting to see that Centrepoint Alliance has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. The annual payment during the last 9 years was A$0.022 in 2014, and the most recent fiscal year payment was A$0.025. This works out to be a compound annual growth rate (CAGR) of approximately 1.4% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Centrepoint Alliance's Dividend Might Lack Growth

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Centrepoint Alliance has impressed us by growing EPS at 74% per year over the past five years. However, Centrepoint Alliance isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Centrepoint Alliance's payments are rock solid. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Centrepoint Alliance that investors need to be conscious of moving forward. Is Centrepoint Alliance not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.