Alexander Forbes Group Holdings (JSE:AFH) Has Announced A Dividend Of ZAR0.22

The board of Alexander Forbes Group Holdings Limited (JSE:AFH) has announced that it will pay a dividend of ZAR0.22 per share on the 13th of January. The payment will take the dividend yield to 6.6%, which is in line with the average for the industry.

View our latest analysis for Alexander Forbes Group Holdings

Alexander Forbes Group Holdings' Projections Indicate Future Payments May Be Unsustainable

Unless the payments are sustainable, the dividend yield doesn't mean too much. Based on the last payment, Alexander Forbes Group Holdings' profits didn't cover the dividend, but the company was generating enough cash instead. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

EPS is set to grow by 15.9% over the next year if recent trends continue. If the dividend continues on its recent course, the payout ratio in 12 months could be 218%, which is a bit high and could start applying pressure to the balance sheet.

Alexander Forbes Group Holdings' Dividend Has Lacked Consistency

Alexander Forbes Group Holdings has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 9 years was ZAR0.12 in 2015, and the most recent fiscal year payment was ZAR0.50. This implies that the company grew its distributions at a yearly rate of about 17% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Alexander Forbes Group Holdings Might Find It Hard To Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Alexander Forbes Group Holdings has seen EPS rising for the last five years, at 16% per annum. However, the payout ratio is very high, not leaving much room for growth of the dividend in the future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Alexander Forbes Group Holdings will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Alexander Forbes Group Holdings that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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