It Might Not Be A Great Idea To Buy Public Joint Stock Company ALROSA (MCX:ALRS) For Its Next Dividend

July 05, 2020
  •  Updated
August 15, 2022
MISX:ALRS
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Public Joint Stock Company ALROSA (MCX:ALRS) stock is about to trade ex-dividend in three days. If you purchase the stock on or after the 10th of July, you won't be eligible to receive this dividend, when it is paid on the 1st of January.

ALROSA's upcoming dividend is ₽2.63 a share, following on from the last 12 months, when the company distributed a total of ₽5.26 per share to shareholders. Looking at the last 12 months of distributions, ALROSA has a trailing yield of approximately 8.0% on its current stock price of RUB65.45. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for ALROSA

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. ALROSA distributed an unsustainably high 114% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. ALROSA paid out more free cash flow than it generated - 131%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

As ALROSA's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

MISX:ALRS Historic Dividend July 6th 2020
MISX:ALRS Historic Dividend July 6th 2020

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, ALROSA's earnings per share have been growing at 13% a year for the past five years. It's great to see earnings per share growing rapidly, but we're disturbed to see the company paid out 114% of its earnings last year. Unless there are extenuating circumstances, we feel this is a clear concern around the sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past eight years, ALROSA has increased its dividend at approximately 23% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

From a dividend perspective, should investors buy or avoid ALROSA? Earnings per share have been growing, despite the company paying out a concerningly high percentage of its earnings and cashflow. We struggle to see how a company paying out so much of its earnings and cash flow will be able to sustain its dividend in a downturn, or reinvest enough into its business to continue growing earnings without borrowing heavily. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

So if you're still interested in ALROSA despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For instance, we've identified 3 warning signs for ALROSA (1 shouldn't be ignored) you should be aware of.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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