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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 3.1%, which is a modest boost for shareholders' returns.
Credit Bureau Asia's Payment Could Potentially Have Solid Earnings Coverage
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. 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.
Earnings per share could rise by 7.0% over the next year if things go the same way as they have for the last few years. If recent patterns in the dividend continue, the payout ratio in 12 months could be 78% which is a bit high but can definitely be sustainable.
Check out our latest analysis for Credit Bureau Asia
Credit Bureau Asia Is Still Building Its Track Record
Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. 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. We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.
Credit Bureau Asia Could Grow Its Dividend
The company's investors will be pleased to have been receiving dividend income for some time. 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, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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 probably look elsewhere for an income investment.