It looks like Alpha Financial Markets Consulting plc (LON:AFM) is about to go ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Alpha Financial Markets Consulting's shares on or after the 8th of September, you won't be eligible to receive the dividend, when it is paid on the 20th of September.
The company's next dividend payment will be UK£0.075 per share. Last year, in total, the company distributed UK£0.10 to shareholders. Calculating the last year's worth of payments shows that Alpha Financial Markets Consulting has a trailing yield of 2.6% on the current share price of £3.925. If you buy this business for its dividend, you should have an idea of whether Alpha Financial Markets Consulting's dividend is reliable and sustainable. So we need to investigate whether Alpha Financial Markets Consulting can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Alpha Financial Markets Consulting distributed an unsustainably high 135% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 26% of its free cash flow in the past year.
It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Alpha Financial Markets Consulting fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Alpha Financial Markets Consulting's earnings have been skyrocketing, up 30% per annum for the past five years.
We'd also point out that Alpha Financial Markets Consulting issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last five years, Alpha Financial Markets Consulting has lifted its dividend by approximately 29% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
Is Alpha Financial Markets Consulting worth buying for its dividend? It's good to see earnings per share growing and low cashflow payout ratio, although we're uncomfortable with Alpha Financial Markets Consulting's paying out such a high percentage of its profit. All things considered, we are not particularly enthused about Alpha Financial Markets Consulting from a dividend perspective.
On that note, you'll want to research what risks Alpha Financial Markets Consulting is facing. Every company has risks, and we've spotted 2 warning signs for Alpha Financial Markets Consulting you should know about.
If you're in the market for strong dividend payers, we recommend checking our selection of top 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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