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This Company Just Increased its Dividends by 45%

dividends bag of cash money

Silverlake Axis Ltd (SGX: 5CP), a provider of digital economy solutions and services, reported earnings on Tuesday for the financial year ended 30 June 2014 (FY 2014).

The company’s revenue came in at RM500.7 million, a 26% increase from the RM398.6 million in sales it made in the prior financial year. Its net profit followed suit by increasing by 27% to RM249 million.

As a result, Silverlake Axis had proposed a final dividend of S$0.012 per share and a special dividend of S$0.006. The total dividend for the financial year thus came to S$0.045, representing a 3.9% trailing dividend yield for the company.

In addition, the dividend for FY2014 is also a rise of 45% as compared to the dividends given out in FY2013.

How did the business do?

A quick look under the hood reveals that majority of Silverlake Axis’ revenue growth came from software licensing, maintenance and enhancement services, and sale of software and hardware products. This is summarized in the chart below.

Source: company earnings report

Silverlake Axis’ revenue was helped by a full year contribution from its 80% stake in Merimen Ventures as well as a maiden contribution from its latest acquisition, Cyber Village Sdn Bhd. Silverlake Axis had paid RM52 million for an 80% equity interest in Merimen Ventures in April 2013, and RM 42 million for Cyber Village in July 2013. Merimen Ventures is a cloud computing Service as a Software platform in the insurance industry while Cyber Village provides e-business solutions with internet and mobile services.

According to Silverlake Axis, the acquisitions of both Merimen and Cyber Village are particularly important as they serve two important functions: 1) They increase the company’s recurring income; and 2) they help to broaden the range of industries the company can serve beyond just banking, which is where the majority of Silverlake’s current crop of customers are from.

For the Foolish dividend investors, the amount of recurring income may be important in providing clues on how sustainable Silverlake Axis’ dividend can be over the long term. As per the company’s latest report, recurring income was 45% of revenue. Another clue on the sustainability of the company’s dividend can come from a comparison of its dividend versus free cash flow (generally, it’s preferable for the former to be lower than latter). On that front, dividends paid cost the company S$89.2 million (RM223.6 million) or 80% of its free-cash-flow.

Among other things, we should also note that Silverlake Axis’s free cash flow for the financial year is around RM 278 million. That high amount of free cash flow, coupled with a rock-solid balance sheet at the end of FY2013 (back then, the company had RM153 million in cash and zero debt), allowed the company to afford the Cyber Village acquisition without having to borrow heavily. As of 30 June 2014, Silverlake Axis’ balance sheet had actually improved compared to a year ago – it now has RM350 million in cash with total borrowings of just RM3.9 million.

Foolish takeaway

Silverlake Axis Ltd’s share price closed at $1.15 yesterday, representing a price to earnings ratio of around 27. At this price, it might not excite the value oriented investor. Growth investors, though, might want to put this company on their watchlist for its prospects in revenue and income growth.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.