Should Alpha Trust Mutual Fund and Alternative Investment Fund Management S.A. (ATH:ATRUST) Be Part Of Your Dividend Portfolio?

Today we'll take a closer look at Alpha Trust Mutual Fund and Alternative Investment Fund Management S.A. (ATH:ATRUST) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

In this case, Alpha Trust Mutual Fund and Alternative Investment Fund Management likely looks attractive to dividend investors, given its 6.9% dividend yield and seven-year payment history. We'd agree the yield does look enticing. Some simple analysis can reduce the risk of holding Alpha Trust Mutual Fund and Alternative Investment Fund Management for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on Alpha Trust Mutual Fund and Alternative Investment Fund Management!

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Alpha Trust Mutual Fund and Alternative Investment Fund Management paid out 63% of its profit as dividends, over the trailing twelve month period. This is a healthy payout ratio, and while it does limit the amount of earnings that can be reinvested in the business, there is also some room to lift the payout ratio over time.

We update our data on Alpha Trust Mutual Fund and Alternative Investment Fund Management every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. Alpha Trust Mutual Fund and Alternative Investment Fund Management has been paying a dividend for the past seven years. Although it has been paying a dividend for several years now, the dividend has been cut at least once, and we're cautious about the consistency of its dividend across a full economic cycle. During the past seven-year period, the first annual payment was €1.5 in 2013, compared to €0.3 last year. Dividend payments have fallen sharply, down 77% over that time.

We struggle to make a case for buying Alpha Trust Mutual Fund and Alternative Investment Fund Management for its dividend, given that payments have shrunk over the past seven years.

Dividend Growth Potential

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Earnings have grown at around 6.6% a year for the past five years, which is better than seeing them shrink! The rate at which earnings have grown is quite decent, and by paying out more than half of its earnings as dividends, the company is striking a reasonable balance between reinvestment and returns to shareholders.

We'd also point out that Alpha Trust Mutual Fund and Alternative Investment Fund Management issued a meaningful number of new shares in the past year. 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.

Conclusion

To summarise, shareholders should always check that Alpha Trust Mutual Fund and Alternative Investment Fund Management's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. First, we think Alpha Trust Mutual Fund and Alternative Investment Fund Management has an acceptable payout ratio. Unfortunately, earnings growth has also been mediocre, and the company has cut its dividend at least once in the past. Alpha Trust Mutual Fund and Alternative Investment Fund Management might not be a bad business, but it doesn't show all of the characteristics we look for in a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 3 warning signs for Alpha Trust Mutual Fund and Alternative Investment Fund Management that you should be aware of before investing.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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This article by Simply Wall St is general in nature. 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.
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