Alexander Forbes Group Holdings (JSE:AFH) Will Pay A Larger Dividend Than Last Year At ZAR0.90

Alexander Forbes Group Holdings Limited (JSE:AFH) has announced that it will be increasing its dividend from last year's comparable payment on the 22nd of July to ZAR0.90. This takes the annual payment to 6.7% 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

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, Alexander Forbes Group Holdings' dividend was higher than its profits, but the free cash flows quite comfortably covered it. 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.

Earnings per share could rise by 15.9% over the next year if things go the same way as they have for the last few years. Assuming the dividend continues along recent trends, we think the payout ratio could reach 214%, 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. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of ZAR0.12 in 2015 to the most recent total annual payment of ZAR0.50. This works out to be a compound annual growth rate (CAGR) of approximately 17% a year over that time. Alexander Forbes Group Holdings has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Alexander Forbes Group Holdings' Dividend Might Lack Growth

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. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

Our Thoughts On Alexander Forbes Group Holdings' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Alexander Forbes Group Holdings' payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.

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. For instance, we've picked out 1 warning sign for Alexander Forbes Group Holdings that investors should take into consideration. 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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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.

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