Alexander Forbes Group Holdings (JSE:AFH) Is Increasing Its Dividend To ZAR0.90

The board of Alexander Forbes Group Holdings Limited (JSE:AFH) has announced that the dividend on 22nd of July will be increased to ZAR0.90, which will be 233% higher than last year's payment of ZAR0.27 which covered the same period. This takes the annual payment to 6.4% of the current stock price, which is about average for the industry.

See our latest analysis for Alexander Forbes Group Holdings

Alexander Forbes Group Holdings Doesn't Earn Enough To Cover Its Payments

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. However, Alexander Forbes Group Holdings' earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

EPS is set to grow by 15.9% over the next year if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 207%, which probably can't continue without starting to put some pressure on the balance sheet.

Alexander Forbes Group Holdings' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. Since 2015, the annual payment back then was ZAR0.12, compared to the most recent full-year payment of ZAR0.47. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

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. We are encouraged to see that Alexander Forbes Group Holdings has grown earnings per share at 16% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Alexander Forbes Group Holdings' prospects of growing its dividend payments in the future.

Alexander Forbes Group Holdings Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Alexander Forbes Group Holdings is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Alexander Forbes Group Holdings that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.