- Oops!Something went wrong.Please try again later.
The board of Alpha Financial Markets Consulting plc (LON:AFM) has announced that it will be increasing its dividend on the 20th of September to UK£0.075. This will take the dividend yield from 2.6% to 2.6%, providing a nice boost to shareholder returns.
Alpha Financial Markets Consulting's Dividend Is Well Covered By Earnings
A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Alpha Financial Markets Consulting's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
Over the next year, EPS is forecast to expand by 143.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 64%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
Alpha Financial Markets Consulting's Dividend Has Lacked Consistency
Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from UK£0.03 in 2017 to the most recent annual payment of UK£0.10. This implies that the company grew its distributions at a yearly rate of about 29% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
Dividend Growth Could Be Constrained
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Alpha Financial Markets Consulting has grown earnings per share at 30% per year over the past five years. EPS has been growing well, but Alpha Financial Markets Consulting has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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. We would probably look elsewhere for an income investment.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. 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 1 warning sign 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here