ALPHA (TSE:3434) Will Pay A Dividend Of ¥20.00

The board of ALPHA Corporation (TSE:3434) has announced that it will pay a dividend of ¥20.00 per share on the 10th of December. This makes the dividend yield 4.1%, which will augment investor returns quite nicely.

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ALPHA Might Find It Hard To Continue The Dividend

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. ALPHA is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

Looking forward, earnings per share could rise by 44.0% over the next year if the trend from the last few years continues. It's nice to see things moving in the right direction, but this probably won't be enough for the company to turn a profit. The healthy cash flows are definitely as good sign, though so we wouldn't panic just yet, especially with the earnings growing.

See our latest analysis for ALPHA

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of ¥30.00 in 2015 to the most recent total annual payment of ¥50.00. This works out to be a compound annual growth rate (CAGR) of approximately 5.2% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. ALPHA might have put its house in order since then, but we remain cautious.

The Company Could Face Some Challenges Growing The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. ALPHA has seen EPS rising for the last five years, at 44% per annum. Even though the company is not profitable, it is growing at a solid clip. If the company can turn a profit relatively soon, we can see this becoming a reliable income stock.

Our Thoughts On ALPHA's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for ALPHA that you should be aware of before investing. Is ALPHA not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.