Challenger offers an annuity stream with income pay-off

The huge numbers of baby boomers retiring are looking for greater certainty in retirement income, and Challenger is aiming to meet that desire with its annuity products. But Challenger’s shares may also be a good source of income for baby boomers. The company is trading within range of our valuation and offers a solid dividend yield, along with exposure to two major trends — demand for annuities and growth in superannuation savings — so we think Challenger is a good option for income-focused investors. Challenger is forecast to pay a full-year total 30c a share dividend, 75% franked, giving a solid 4.2% dividend. The payout is forecast to rise to 32c a share in 2016, a prospective yield of 4.5%. At about $7.02 a share Challenger is trading almost in line with our forecast value of $6.92. With a solid yield and strong long-term outlook, we think the company is a strong option for ­income-focused investors. (VIEW LINK)