The Alumasc Group plc's (LON:ALU) periodic dividend will be increasing on the 6th of April to £0.034, with investors receiving 1.5% more than last year's £0.0335. This will take the dividend yield to an attractive 6.3%, providing a nice boost to shareholder returns.
Alumasc Group's Payment Has Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. However, based ont he last payment, Alumasc Group was earning enough to cover the dividend pretty comfortably. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.
Looking forward, earnings per share is forecast to fall by 0.5% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 41%, which we are pretty comfortable with and we think is feasible on an earnings basis.
The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was £0.02 in 2013, and the most recent fiscal year payment was £0.10. This works out to be a compound annual growth rate (CAGR) of approximately 17% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
The Dividend Has Growth Potential
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. Alumasc Group has seen EPS rising for the last five years, at 8.6% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Alumasc Group's prospects of growing its dividend payments in the future.
In summary, while it's always good to see the dividend being raised, we don't think Alumasc Group's payments are rock solid. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Alumasc Group has been making. We don't think Alumasc Group is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. 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 2 warning signs for Alumasc Group 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.
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