How Does The Alumasc Group plc (LON:ALU) Fare As A Dividend Stock?

A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically, The Alumasc Group plc (LON:ALU) has paid dividends to shareholders, and these days it yields 5.8%. Let’s dig deeper into whether Alumasc Group should have a place in your portfolio.

Check out our latest analysis for Alumasc Group

5 checks you should do on a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Is its annual yield among the top 25% of dividend-paying companies?

• Does it consistently pay out dividends without missing a payment of significantly cutting payout?

• Has dividend per share amount increased over the past?

• Can it afford to pay the current rate of dividends from its earnings?

• Will it have the ability to keep paying its dividends going forward?

LSE:ALU Historical Dividend Yield November 28th 18

Does Alumasc Group pass our checks?

The current trailing twelve-month payout ratio for the stock is 61%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 40%, leading to a dividend yield of 6.1%. However, EPS should increase to £0.15, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.

If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Dividend payments from Alumasc Group have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.

Relative to peers, Alumasc Group has a yield of 5.8%, which is high for Building stocks.

Next Steps:

Taking into account the dividend metrics, Alumasc Group ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three pertinent factors you should further research:

1. Future Outlook: What are well-informed industry analysts predicting for ALU’s future growth? Take a look at our free research report of analyst consensus for ALU’s outlook.

2. Valuation: What is ALU worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether ALU is currently mispriced by the market.

3. Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.