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The board of Credit Bureau Asia Limited (SGX:TCU) has announced that it will pay a dividend of SGD0.02 per share on the 30th of May. Including this payment, the dividend yield on the stock will be 3.0%, which is a modest boost for shareholders' returns.
Credit Bureau Asia's Payment Could Potentially Have Solid Earnings Coverage
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before this announcement, Credit Bureau Asia was paying out 82% of earnings, but a comparatively small 32% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.
Over the next year, EPS is forecast to expand by 31.1%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 64% which brings it into quite a comfortable range.
View our latest analysis for Credit Bureau Asia
Credit Bureau Asia Doesn't Have A Long Payment History
The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. Since 2021, the dividend has gone from SGD0.034 total annually to SGD0.04. This implies that the company grew its distributions at a yearly rate of about 4.1% over that duration. Credit Bureau Asia hasn't been paying a dividend for very long, so we wouldn't get to excited about its record of growth just yet.
We Could See Credit Bureau Asia's Dividend Growing
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Credit Bureau Asia has seen EPS rising for the last five years, at 7.0% per annum. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.
In Summary
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Now, if you want to look closer, it would be worth checking out our free research on Credit Bureau Asia management tenure, salary, and performance. Is Credit Bureau Asia 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.