ALPHA (TSE:3434) Has Affirmed Its Dividend Of ¥20.00

The board of ALPHA Corporation (TSE:3434) has announced that it will pay a dividend on the 5th of December, with investors receiving ¥20.00 per share. This makes the dividend yield 3.7%, which will augment investor returns quite nicely.

See our latest analysis for ALPHA

ALPHA's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. However, prior to this announcement, ALPHA's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Unless the company can turn things around, EPS could fall by 3.4% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 25%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ¥30.00 in 2014, and the most recent fiscal year payment was ¥50.00. This means that it has been growing its distributions at 5.2% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

ALPHA May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though ALPHA's EPS has declined at around 3.4% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

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