The Challenger Ltd (ASX: CGF) share price has fallen around 65% since 21 February 2020. It’s one of the hardest hit large financial shares on the ASX, though it has risen 5.75% today.
Challenger is the country’s leading annuity provider. Annuities provide retirees a guaranteed source of income for their capital. It’s times like this that an annuity can really provide peace of mind to those who hold them.
But what about for shareholders of Challenger?
It’s been a painful few weeks. Seeing the value of your shares fall by over 50% because of the coronavirus is hard.
Challenger recently gave an update to the market and said that it was on track to achieve its FY20 normalised net profit before tax within its guidance range. In the February 2020 reporting season it did say its net profit before tax would be around the top end of its guidance, but it said it was prudent to return to its previous guidance of $500 million to $550 million.
The company said Challenger Life continues to actively manage its investment portfolio to maintain a strong capital position and remain within its target range of 1.3 times to 1.6 times the ‘Prescribed Capital Amount’ (PCA), which includes reducing the capital intensity of the investment portfolio.
While the investment market volatility impacts the fair value of Challenger Life’s assets and statutory earnings, Challenger said it has no impact on Life’s normalised earnings. However, funds management earnings are impacted by the lower funds under management (FUM) and associated performance fees.
And the dividend?
There was no mention about the dividend in the recent release, but in the FY20 half-year result the company said the full year dividend was still expected to remain unchanged from FY19 at 35.5 cents per share.
If the company achieves that dividend its grossed-up dividend yield is 13.8%, which is a huge yield. Challenger maintained its dividend during the GFC and it could maintain its dividend during this too – it has a huge attractive yield if it does.
The low interest rate will definitely cause problems for Challenger, but it could now be too cheap to ignore and it offers a great dividend.