Alumasc Group (LON:ALU) Will Pay A Larger Dividend Than Last Year At £0.0665

The board of The Alumasc Group plc (LON:ALU) has announced that the dividend on 4th of November will be increased to £0.0665, which will be 6.4% higher than last year's payment of £0.0625 which covered the same period. This makes the dividend yield 6.2%, which is above the industry average.

Check out our latest analysis for Alumasc Group

Alumasc Group's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Alumasc Group was paying a whopping 275% as a dividend, but this only made up 37% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Looking forward, earnings per share is forecast to fall by 4.6% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 40%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the annual payment back then was £0.02, compared to the most recent full-year payment of £0.10. This implies that the company grew its distributions at a yearly rate of about 17% 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 Has Growth Potential

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. It's encouraging to see that Alumasc Group has been growing its earnings per share at 7.9% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Alumasc Group's prospects of growing its dividend payments in the future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Alumasc Group's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Alumasc Group is a great stock to add to your portfolio if income is your focus.

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. Just as an example, we've come across 4 warning signs for Alumasc Group you should be aware of, and 2 of them are significant. Is Alumasc Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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