Alpha Financial Markets Consulting (LON:AFM) Will Pay A Larger Dividend Than Last Year At £0.105

Alpha Financial Markets Consulting plc's (LON:AFM) dividend will be increasing from last year's payment of the same period to £0.105 on 19th of September. This takes the dividend yield to 3.6%, which shareholders will be pleased with.

See our latest analysis for Alpha Financial Markets Consulting

Alpha Financial Markets Consulting's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last payment made up 90% of earnings, but cash flows were much higher. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Over the next year, EPS is forecast to expand by 85.8%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 60% which would be quite comfortable going to take the dividend forward.

Alpha Financial Markets Consulting's Dividend Has Lacked Consistency

It's comforting to see that Alpha Financial Markets Consulting has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2018, the dividend has gone from £0.0296 total annually to £0.142. This works out to be a compound annual growth rate (CAGR) of approximately 37% a year 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's Dividend Might Lack Growth

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 Alpha Financial Markets Consulting has been growing its earnings per share at 23% a year over the past five years. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why Alpha Financial Markets Consulting is not retaining those earnings to reinvest in growth.

In Summary

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. 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. 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 Alpha Financial Markets Consulting that investors should know about before committing capital to this stock. Is Alpha Financial Markets Consulting not quite the opportunity you were looking for? Why not check out our selection of top 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.