Algoma Central (TSE:ALC) Has Announced That It Will Be Increasing Its Dividend To CA$0.18

Algoma Central Corporation's (TSE:ALC) dividend will be increasing from last year's payment of the same period to CA$0.18 on 1st of March. Even though the dividend went up, the yield is still quite low at only 4.4%.

View our latest analysis for Algoma Central

Algoma Central's Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, Algoma Central was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS could expand by 26.5% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 69%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was CA$0.20 in 2013, and the most recent fiscal year payment was CA$0.72. This implies that the company grew its distributions at a yearly rate of about 14% 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.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Algoma Central has impressed us by growing EPS at 27% per year over the past five years. 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.

Algoma Central Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. 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 example, we've picked out 1 warning sign 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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