Income investors love stocks that pay out dividends as their focus is to build up a reliable stream of passive income.
Hence, such investors will target stocks that can pay out a reliable dividend.
Stocks that pay out a decent dividend yield are favoured by income investors as the impression given is that such a payout is sustainable.
However, if the dividend yield seems too high, these investors may worry that it cannot be sustained.
A great example of a stock with a high dividend yield is CSE Global (SGX: 544).
The stock is offering a yield of 6% at a share price of S$0.46, similar to what REITs in the REIT sector are offering.
Can CSE Global sustain this dividend yield, or should investors look elsewhere for other dividend opportunities?
Background of CSE Global
CSE Global is an engineering firm serving customers across a wide spectrum of industries.
The group provides electrification, communications, and automation solutions to customers in diverse sectors.
Listed 25 years ago in 1999, the group has a presence across 16 countries, has 58 offices, and employs more than 2,000 employees across the world.
The main sectors it targets are energy, infrastructure, and mining & minerals, but the group also provides solutions to the retail, transport, and pharmaceutical industries.
CSE Global makes customers’ jobs easier by solving their problems and applying its engineering knowledge to find the right solutions.
The group can customise and integrate the systems that sit at the heart of customers’ infrastructure by incorporating the latest and most efficient technologies.
The engineering firm also counts government organisations and renowned brand names as its clients and enjoys 90% repeat customers, a testament to the group’s service quality and reliability.
A solid track record of dividend payments
CSE Global has not only built up a solid track record of delivering projects to its customers, but is also a reliable dividend payer.
Its dividend per share has stayed constant at S$0.0275 for the past five years from 2019 to 2023, an impressive feat as this period covers the COVID-19 pandemic.
Although the group’s order intake dipped to the S$400+ million level during the pandemic years of 2020 and 2021, it rebounded sharply to hit S$818.7 million in 2022.
By the end of 2023, CSE Global saw its order intake hit a new record of S$990.2 million with its order book hitting S$730.6 million, up 52.2% year on year.
This surge in order intake and sharp improvement in the group’s order book is a validation of the group’s strong engineering capabilities and successful business development efforts.
Encouraging first half results
The good news is that CSE Global’s business momentum has carried on into the first half of 2024 (1H 2024).
Revenue rose 22.8% year on year to S$428.9 million with gross profit increasing by 23.6% year on year to S$118.4 million.
Net profit climbed 36.4% year on year to S$15 million.
The group generated a positive operating cash flow of S$15.8 million for 1H 2024, a reversal from the operating cash outflow of S$1.1 million a year ago.
Order intake remained healthy at S$390.6 million with CSE Global’s order book surging by nearly 33% year on year to S$692.3 million.
Healthy prospects
Management has identified areas of future growth for the Energy and Infrastructure sectors.
There are ample opportunities in the small greenfield and brownfield projects in the Gulf of Mexico along with renewable energy projects in the Americas.
Energy Solutions in Australia and New Zealand is another opportunity that CSE Global can tap into.
Over at Infrastructure, the Singapore government can continue to provide contracts for the group along with security, transport and communications-related projects.
Investors should note that acquisitions remain a key growth strategy for CSE Global.
The group had just concluded the acquisition of RFC Wireless for US$11.5 million back in late July.
RFC Wireless provides advanced communication solutions from portable and mobile radios to wide area networks and infrastructure.
The US company recorded a net profit before tax of around US$2.9 million for 2023.
Looking ahead, CSE Global will focus on areas that are complementary and adjacent such as electrification and critical communications in the regions of Europe, USA, and Australia/New Zealand.
Importantly, the group emphasized that it will acquire within its means and will not gear up excessively.
Get Smart: A sustainable and high dividend yield
CSE Global has proven its mettle as an engineering firm.
The group has not only sustained its annual dividend throughout the pandemic, but also managed to build up its order intake and deliver an impressive set of earnings.
Investors should feel assured that CSE Global can continue to deliver on its projects and that it can continue to sustain its S$0.0275 per year dividend.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
