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

Alpha Financial Markets Consulting plc (LON:AFM) has announced that it will be increasing its dividend from last year's comparable payment on the 19th of September to £0.105. This will take the dividend yield to an attractive 4.0%, providing a nice boost to shareholder returns.

Check out our latest analysis for Alpha Financial Markets Consulting

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

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before this announcement, Alpha Financial Markets Consulting was paying out 90% of earnings, but a comparatively small 54% of free cash flows. This leaves plenty of cash for reinvestment into the business.

The next year is set to see EPS grow by 59.3%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 70% which would be quite comfortable going to take the dividend forward.

Alpha Financial Markets Consulting's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of £0.0296 in 2017 to the most recent total annual payment of £0.142. This means that it has been growing its distributions at 30% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Dividend Growth Could Be Constrained

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. Alpha Financial Markets Consulting has seen EPS rising for the last five years, at 23% per annum. 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 company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. 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. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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.