Ag Growth International (TSE:AFN) Has Affirmed Its Dividend Of CA$0.15

The board of Ag Growth International Inc. (TSE:AFN) has announced that it will pay a dividend on the 15th of July, with investors receiving CA$0.15 per share. This payment means that the dividend yield will be 1.6%, which is around the industry average.

Check out our latest analysis for Ag Growth International

Ag Growth International's Distributions May Be Difficult To Sustain

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Ag Growth International is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

Over the next year, EPS might fall by 37.5% based on recent performance. While this means that the company will be unprofitable, we generally believe cash flows are more important, and the current cash payout ratio is quite healthy, which gives us comfort.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The first annual payment during the last 10 years was CA$2.04 in 2011, and the most recent fiscal year payment was CA$0.60. This works out to a decline of approximately 71% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Has Limited Growth Potential

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Over the past five years, it looks as though Ag Growth International's EPS has declined at around 38% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

Ag Growth International's Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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 don't think Ag Growth International is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. To that end, Ag Growth International has 2 warning signs (and 1 which is potentially serious) we think you should know about. We have also put together a list of global stocks with a solid dividend.

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