Summary

Final dividend increased 6x to S$0.03 (FY17: S$0.005) Special dividend of S$0.015 declared (FY17: NIL) Total dividends payable on 24 May 2019 = S$0.045 (19% yield) Normal dividends adequately covered by the group’s free cash flow Potentially a sustainable 16% dividend yield play Zero Growth Dividend Discount Model projects a target price of S$0.38 (Cost of Equity = 7.8%)

Introduction

Avarga announced its FY18 results on 23 Feb after market hours. While its results were nothing to shout about, what was interesting was the dramatic change in the firm’s payout policy. The company increased its final dividend by 6x from 0.5 cents to 3 cents. Based on the current share price of S$0.235, this represents a yield of 12.8%. In addition, a 1.5 cent special dividend was declared due to the successful divestment of the group’s Tuas property for S$18.6m. With total shares outstanding of approx. 944.032m, this meant that almost