Don't Buy AfroCentric Investment Corporation Limited (JSE:ACT) For Its Next Dividend Without Doing These Checks

AfroCentric Investment Corporation Limited (JSE:ACT) stock is about to trade ex-dividend in four days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Accordingly, AfroCentric Investment investors that purchase the stock on or after the 7th of May will not receive the dividend, which will be paid on the 12th of May.

The company's upcoming dividend is R00.06 a share, following on from the last 12 months, when the company distributed a total of R0.06 per share to shareholders. Based on the last year's worth of payments, AfroCentric Investment stock has a trailing yield of around 3.4% on the current share price of R01.79. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

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.

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. AfroCentric Investment lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable.

See our latest analysis for AfroCentric Investment

Click here to see how much of its profit AfroCentric Investment paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. AfroCentric Investment was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. AfroCentric Investment's dividend payments per share have declined at 10% per year on average over the past 10 years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Get our latest analysis on AfroCentric Investment's balance sheet health here.

The Bottom Line

From a dividend perspective, should investors buy or avoid AfroCentric Investment? First, it's not great to see the company paying a dividend despite being loss-making over the last year. Worse, the general trend in its earnings looks negative in recent years. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

With that being said, if you're still considering AfroCentric Investment as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 4 warning signs for AfroCentric Investment (2 are potentially serious!) that deserve your attention before investing in the shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.