In This Article:
The board of CSE Global Limited (SGX:544) has announced that it will pay a dividend on the 26th of June, with investors receiving SGD0.015 per share. The dividend yield will be 6.5% based on this payment which is still above the industry average.
See our latest analysis for CSE Global
CSE Global's Payment Has Solid Earnings Coverage
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before this announcement, CSE Global was paying out 75% of earnings, but a comparatively small 55% of free cash flows. This leaves plenty of cash for reinvestment into the business.
Over the next year, EPS is forecast to expand by 60.1%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 51% which would be quite comfortable going to take the dividend forward.
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 2014, the dividend has gone from SGD0.0425 total annually to SGD0.0275. The dividend has shrunk at around 4.3% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
CSE Global May Find It Hard To Grow The Dividend
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Over the past five years, it looks as though CSE Global's EPS has declined at around 4.9% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.
We should note that CSE Global has issued stock equal to 10% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
Our Thoughts On CSE Global's Dividend
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about CSE Global's payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.