AfroCentric Investment's (JSE:ACT) Shareholders Will Receive A Smaller Dividend Than Last Year

AfroCentric Investment Corporation Limited (JSE:ACT) has announced that on 12th of May, it will be paying a dividend ofZAR0.06, which a reduction from last year's comparable dividend. This means that the annual payment is 3.6% of the current stock price, which is lower than what the rest of the industry is paying.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

AfroCentric Investment's Distributions May Be Difficult To Sustain

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Even though AfroCentric Investment isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. This gives us some comfort about the level of the dividend payments.

Over the next year, EPS might fall by 30.5% based on recent performance. While this means that the company will be unprofitable, we generally believe cash flows are more important, and the current cash payout ratio is quite healthy, which gives us comfort.

Check out our latest analysis for AfroCentric Investment

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was ZAR0.18, compared to the most recent full-year payment of ZAR0.06. The dividend has fallen 67% over that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

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. AfroCentric Investment's EPS has fallen by approximately 30% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

AfroCentric Investment's Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think AfroCentric Investment is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, AfroCentric Investment has 4 warning signs (and 2 which shouldn't be ignored) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.