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4 reasons to own Challenger Limited shares

Australian $50 dollar notes

Challenger Limited (ASX: CGF) is a stock that can combine your long-term investing goals with the popularity of superannuation retirement. Many people are taking a larger role in growing their superannuation such as with self-managed super funds (SMSF), which allow fund owners to choose how they invest their money for the future.

Challenger offers savers other ways of providing a post-retirement income to go along with super. Here are four reasons why investors would want to hold shares in Challenger.

  1. Long-term growth potential with retirement annuities: Retirement annuities are in high demand and are becoming a solid business for Challenger. Clients hand over a lump sum of money for the promise of receiving a certain amount of annual income years later when they retire. Challenger invests that money now to generate a good return to cover the future payments and realise a company profit. This kind of investment mirrors the long-term time horizon investors need for stable wealth creation.
  2. Strong track record of dividend growth: Challenger has increased its annual dividend payment more than five times over the past ten years. That works out to be an average annual 20% increase. The future may be different, but having a reliable source of growing dividend income is important for stable portfolio returns.
  3. Decent dividend yield: The stock offers a 4.0% partially franked yield. Challenger raised its interim dividend 16% to 14.5 cents per share. The franking percentage was raised to 70% and the dividend payout ratio is now 50%, up from 39% in the first half a year ago. As company earnings get better, the dividend benefits can get bigger.
  4. Well connected with large wealth management companies: Challenger’s financial products will be offered to clients of some of Australia’s most established wealth management businesses like Colonial First State and industry fund VicSuper from the second half of financial year 2015. That will give the annuities specialist a wide degree of product distribution. In addition, Challenger also operates a specialised SMSF retirement income company called Accurium to take advantage of business opportunities directly in the huge SMSF industry.

Challenger has very good prospects, which will build up over time as more people want to secure a financially sound retirement. For a promising long-term investment, a long-term investment company like Challenger may be a good solution.

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Returns As of 6th October 2020

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 


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