Alpha Financial Markets Consulting (LON:AFM) Is Increasing Its Dividend To UK£0.029

Alpha Financial Markets Consulting plc (LON:AFM) has announced that it will be increasing its dividend on the 22nd of December to UK£0.029. This makes the dividend yield about the same as the industry average at 2.0%.

Check out our latest analysis for Alpha Financial Markets Consulting

Alpha Financial Markets Consulting's Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, the company was paying out 215% of what it was earning and 78% of cash flows. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.

According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 48%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.

Alpha Financial Markets Consulting's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. The dividend has gone from UK£0.03 in 2017 to the most recent annual payment of UK£0.077. This means that it has been growing its distributions at 27% per annum over that time. Alpha Financial Markets Consulting 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.

Alpha Financial Markets Consulting Might Find It Hard To Grow Its Dividend

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. We are encouraged to see that Alpha Financial Markets Consulting has grown earnings per share at 34% per year over the past five years. While EPS is growing rapidly, Alpha Financial Markets Consulting paid out a very high 215% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.

Alpha Financial Markets Consulting's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Alpha Financial Markets Consulting's payments are rock solid. Strong earnings growth means Alpha Financial Markets Consulting has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 4 warning signs for Alpha Financial Markets Consulting that investors need to be conscious of moving forward. We have also put together a list of global stocks with a solid dividend.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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