Alpha Financial Markets Consulting (LON:AFM) Is Paying Out A Larger Dividend Than Last Year

Alpha Financial Markets Consulting plc (LON:AFM) will increase its dividend from last year's comparable payment on the 19th of September to £0.105. This makes the dividend yield 3.7%, which is above the industry average.

Check out our latest analysis for Alpha Financial Markets Consulting

Alpha Financial Markets Consulting's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before this announcement, Alpha Financial Markets Consulting was paying out 90% of earnings, but a comparatively small 55% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Looking forward, earnings per share is forecast to rise by 59.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 70%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Alpha Financial Markets Consulting's Dividend Has Lacked Consistency

Alpha Financial Markets Consulting has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2017, the annual payment back then was £0.0296, compared to the most recent full-year payment of £0.142. This means that it has been growing its distributions at 30% per annum 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.

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. It's encouraging to see that Alpha Financial Markets Consulting has been growing its earnings per share at 23% a year over the past five years. However, Alpha Financial Markets Consulting isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Alpha Financial Markets Consulting will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.

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. Taking the debate a bit further, we've identified 1 warning sign for Alpha Financial Markets Consulting that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.