Challenger Technologies (SGX:573) Will Pay A Larger Dividend Than Last Year At S$0.028

The board of Challenger Technologies Limited (SGX:573) has announced that it will be increasing its dividend by 3.7% on the 20th of May to S$0.028. This will take the annual payment from 4.9% to 4.9% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Challenger Technologies

Challenger Technologies' Earnings Easily Cover the Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Challenger Technologies' dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

If the trend of the last few years continues, EPS will grow by 4.4% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 59%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the first annual payment was S$0.015, compared to the most recent full-year payment of S$0.028. This means that it has been growing its distributions at 6.2% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, Challenger Technologies has only grown its earnings per share at 4.4% per annum over the past five years. Growth of 4.4% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This could mean the dividend doesn't have the growth potential we look for going into the future.

We'd also point out that Challenger Technologies has issued stock equal to 16% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

Our Thoughts On Challenger Technologies' Dividend

Overall, this is a reasonable dividend, and it being raised is an added bonus. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 Challenger Technologies that investors need to be conscious of moving forward. Is Challenger Technologies not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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