Aferian's (LON:AFRN) Upcoming Dividend Will Be Larger Than Last Year's

Aferian Plc's (LON:AFRN) dividend will be increasing to UK£0.021 on 22nd of April. This takes the annual payment to 2.3% of the current stock price, which is about average for the industry.

Check out our latest analysis for Aferian

Aferian's Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Aferian's dividend was only 57% of earnings, however it was paying out 170% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

EPS is set to fall by 2.3% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 37%, which is comfortable for the company to continue in the future.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the dividend has gone from US$0.031 to US$0.055. This implies that the company grew its distributions at a yearly rate of about 5.9% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Aferian Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Aferian has seen EPS rising for the last five years, at 8.4% per annum. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

We'd also point out that Aferian has issued stock equal to 12% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

Our Thoughts On Aferian's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Aferian's payments are rock solid. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Taking the debate a bit further, we've identified 3 warning signs for Aferian that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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