Alpha Financial Markets Consulting's (LON:AFM) Upcoming Dividend Will Be Larger Than Last Year's

Alpha Financial Markets Consulting plc (LON:AFM) will increase its dividend on the 20th of September to UK£0.075. This will take the dividend yield from 2.6% to 2.6%, providing a nice boost to shareholder returns.

Check out our latest analysis for Alpha Financial Markets Consulting

Alpha Financial Markets Consulting's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Alpha Financial Markets Consulting's profits didn't cover the dividend, but the company was generating enough cash instead. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Over the next year, EPS is forecast to expand by 191.9%. If the dividend continues along recent trends, we estimate the payout ratio will be 53%, 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

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 2017, the first annual payment was UK£0.03, compared to the most recent full-year payment of UK£0.10. This works out to be a compound annual growth rate (CAGR) of approximately 29% a year 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.

Dividend Growth Could Be Constrained

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see Alpha Financial Markets Consulting has been growing its earnings per share at 30% a year over the past five years. EPS has been growing well, but Alpha Financial Markets Consulting has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

Our Thoughts On Alpha Financial Markets Consulting's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Alpha Financial Markets Consulting that investors should take into consideration. Is Alpha Financial Markets Consulting not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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