Alpha Financial Markets Consulting plc (LON:AFM) will increase its dividend on the 20th of September to UK£0.075. This makes the dividend yield 2.8%, which is above the industry average.
Alpha Financial Markets Consulting's Earnings Easily Cover the Distributions
Impressive dividend yields are good, but this doesn't matter much if the payments 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 191.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 53%, 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 suggests that the dividend might not be the most reliable. Since 2017, the first annual payment was UK£0.03, compared to the most recent full-year payment of UK£0.10. This implies that the company grew its distributions at a yearly rate of about 29% over that duration. 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's Dividend Might Lack Growth
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Alpha Financial Markets Consulting has impressed us by growing EPS at 30% per year over the past five years. Strong earnings is nice to see, but unless this can be sustained on minimal reinvestment of profits, we would question whether dividends will follow suit.
Our Thoughts On Alpha Financial Markets Consulting's Dividend
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. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Alpha Financial Markets Consulting that you should be aware of before investing. Is Alpha Financial Markets Consulting not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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