ASX dividend stocks: A 5-7% yielder paired with an upward-trending share price
Servcorp's shares are up 80% since November 2023, consistently yielding over 5% for seven years.
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Mentioned
KEY POINTS
- Servcorp offers premium serviced and virtual offices across 150 locations worldwide
- Servcorp has rallied 80% since November 2023, driven by strong FY25 results, including a 13% rise in free cash flow and a projected 5.1% dividend yield
- The company maintains a debt-free model, offering stability despite a history of cyclical rallies and selloffs tied to economic swings
I'm on a mission to uncover some of the ASX's most compelling dividend-paying stocks. The aim is to provide readers with the key data and forecasts to make more informed decisions. Today, we're taking a closer look at Servcorp.
Servcorp (ASX: SRV) provides serviced offices, virtual offices, co-working spaces, and IT solutions for businesses. They offer flexible workspace options in premium locations across over 150 locations in Asia, Europe, North America, and the Middle East.
The stock has been in a strong uptrend since November 2023, with shallow pullbacks of no more than 10%. Over this time, it’s rallied 80% to levels not seen since February 2018.
Servcorp shares have been in a powerful uptrend since November 2023 (Source: TradingView)
Key stats
Market cap: $540 million
Trailing 12-month dividend yield: 4.9%
Average dividend yield (last five years): 6.65% at an average 69.2% payout ratio
Price-to-earnings ratio: 13.7
12-month performance: +47.4%
12-month trading range: $3.72 - $5.78
Latest results
Servcorp's latest half-year FY25 result (announced 19 February) highlight strong underlying free cash flow, earnings, and a higher dividend. The key highlights include:
Underlying free cash flow up 13% to $40.5 million
Underlying EPS up 21% to 31.5 cents
Interim dividend up 16.6% to 14 cents per share
Cash and investment balance of $120 million
Guided to final dividend for FY25 to be "no less than 14 cents per share"
Guided to net profit before interest and tax of $61-65 million, with the view that "we are tracking towards the higher end of that range"
The result was welcomed by the market, driving the stock up 5.5% on the day
Over the years
Since its ASX listing in December 1999, Servcorp’s share price has experienced a pattern of extended multi-year rallies followed by equally prolonged selloffs.
The dot-com crash of 2000 set a harsh tone early on. Servcorp’s core clients — small businesses, startups, and tech firms — depended on its serviced offices for flexibility, but when the tech bubble burst, many folded or scaled back. The 2008 financial crisis delivered a similar blow, slashing demand and dragging the stock from $6 to lows of $2.
Profit warnings have also dented investor confidence. A notable instance came in 2017 when Servcorp cut its FY17 profit guidance from $56 million to $47 million, triggering a 17% single-day selloff.
Yet, amid these troughs, Servcorp has shown resilience and steady underlying growth. After bottoming out in 2003 and 2012, the stock surged in multi-year rallies of over 500% and 200%, respectively, buoyed by economic recoveries and operational adjustments. Through it all, Servcorp has adhered to a disciplined, debt-free or near-debt-free model. Though earnings volatility has sparked turbulence, the company has consistently emerged from downturns relatively unscathed and unburdened by leverage.
Servcorp all-time price chart (Source: TradingView)
The bottom line
Servcorp is currently riding an upswing, fueled by robust earnings growth over the past two years. The company shows strong confidence in its near-term outlook, with its latest half-year FY25 results providing clear guidance:
Reaffirmed FY25 underlying net profit before interest and tax of $61-65m, with management noting they are “tracking toward the higher end of that range.”
A final dividend of at least 14 cents per share, bringing the full-year dividend to a minimum of 28 cents — translating to a 5.1% yield at current prices.
It will be interesting to see if Servcorp’s cyclical nature will resurface. Historically, its rallies have hit ceilings when global economic growth faltered (or external shocks). Another factor to watch is the stock’s relative illiquidity, with founder Alf Moufarrige holding just over 50% of outstanding shares.
