Alpha Financial Markets Consulting plc (LON:AFM) will increase its dividend from last year's comparable payment on the 20th of September to £0.075. This will take the annual payment to 2.4% of the stock price, which is above what most companies in the industry pay.
Alpha Financial Markets Consulting's Payment Has Solid Earnings Coverage
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the company was paying out 135% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 34%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
Looking forward, earnings per share is forecast to rise by 189.9% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 54% which would be quite comfortable going to take the dividend forward.
Alpha Financial Markets Consulting's Dividend Has Lacked Consistency
Looking back, Alpha Financial Markets Consulting's dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of £0.0296 in 2017 to the most recent total annual payment of £0.104. This means that it has been growing its distributions at 29% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
Alpha Financial Markets Consulting Might Find It Hard To Grow Its Dividend
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Alpha Financial Markets Consulting has impressed us by growing EPS at 30% per year over the past five years. Although earnings per share is up nicely Alpha Financial Markets Consulting is paying out 135% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.
In summary, while it's always good to see the dividend being raised, we don't think Alpha Financial Markets Consulting's payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Alpha Financial Markets Consulting that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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