Algoma Central (TSE:ALC) Has Affirmed Its Dividend Of CA$0.17

Algoma Central Corporation's (TSE:ALC) investors are due to receive a payment of CA$0.17 per share on 1st of September. The dividend yield is 4.0% based on this payment, which is a little bit low compared to the other companies in the industry.

View our latest analysis for Algoma Central

Algoma Central's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, Algoma Central's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS could expand by 145.3% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 12% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the dividend has gone from CA$0.18 total annually to CA$0.68. This means that it has been growing its distributions at 14% per annum over that time. Algoma Central has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

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. Algoma Central has seen EPS rising for the last five years, at 145% per annum. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

We Really Like Algoma Central's Dividend

Overall, we like to see the dividend staying consistent, and we think Algoma Central might even raise payments in the future. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Algoma Central that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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