Should You Or Shouldn't You: A Dividend Analysis on Alpha Trust Mutual Fund and Alternative Investment Fund Management S.A. (ATH:ATRUST)

March 02, 2021
  •  Updated
October 03, 2022
ATSE:ATRUST
Source: Shutterstock

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. Yet sometimes, investors buy a popular dividend stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

With a goodly-sized dividend yield despite a relatively short payment history, investors might be wondering if Alpha Trust Mutual Fund and Alternative Investment Fund Management is a new dividend aristocrat in the making. We'd agree the yield does look enticing. There are a few simple ways to reduce the risks of buying Alpha Trust Mutual Fund and Alternative Investment Fund Management for its dividend, and we'll go through these below.

Click the interactive chart for our full dividend analysis

historic-dividend
ATSE:ATRUST Historic Dividend March 3rd 2021

Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Looking at the data, we can see that 103% of Alpha Trust Mutual Fund and Alternative Investment Fund Management's profits were paid out as dividends in the last 12 months. Unless there are extenuating circumstances, from the perspective of an investor who hopes to own the company for many years, a payout ratio of above 100% is definitely a concern.

Remember, you can always get a snapshot of Alpha Trust Mutual Fund and Alternative Investment Fund Management's latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. 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 2014, compared to €0.3 last year. This works out to a decline of approximately 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

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS are growing. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see Alpha Trust Mutual Fund and Alternative Investment Fund Management has grown its earnings per share at 23% per annum over the past five years. Earnings per share have been growing very rapidly, although the company is also paying out virtually all of its profit in dividends. Generally, a company that is growing rapidly while paying out a majority of its earnings, is seeing its debt burden increase. We'd be conscious of any extra risk added by this practice.

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

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. We're a bit uncomfortable with its high payout ratio. Next, earnings growth has been good, but unfortunately the dividend has been cut at least once in the past. While we're not hugely bearish on it, overall we think there are potentially better dividend stocks than Alpha Trust Mutual Fund and Alternative Investment Fund Management out there.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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%.

If you decide to trade Alpha Trust Mutual Fund and Alternative Investment Fund Management, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted


Valuation is complex, but we're helping make it simple.

Find out whether Alpha Trust Mutual Fund and Alternative Investment Fund Management is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis