Algoma Central (TSE:ALC) Has Announced A Dividend Of CA$0.17

The board of Algoma Central Corporation (TSE:ALC) has announced that it will pay a dividend of CA$0.17 per share on the 1st of June. Including this payment, the dividend yield on the stock will be 4.0%, which is a modest boost for shareholders' returns.

Check out our latest analysis for Algoma Central

Algoma Central's Dividend Is Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. However, prior to this announcement, Algoma Central's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

If the trend of the last few years continues, EPS will grow by 29.4% over the next 12 months. If the dividend continues on this path, the payout ratio could be 27% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the first annual payment was CA$0.18, compared to the most recent full-year payment of CA$0.68. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. 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.

The Dividend Looks Likely To Grow

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. Algoma Central has seen EPS rising for the last five years, at 29% 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

In summary, it is good to see that the dividend is staying consistent, and we don't think there is any reason to suspect this might change over the medium term. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Algoma Central that investors should know about before committing capital to this stock. Is Algoma Central not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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