Afine Investments Limited’s (JSE:ANI) dividend is being reduced from last year’s payment covering the same period to ZAR0.206 on the 26th of June. Based on this payment, the dividend yield will be 4.6%, which is lower than the average for the industry.
Afine Investments Is Paying Out More Than It Is Earning
If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Afine Investments’ dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
If the company can’t turn things around, EPS could fall by 90.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 959%, which could put the dividend in jeopardy if the company’s earnings don’t improve.
Afine Investments Doesn’t Have A Long Payment History
It’s not possible for us to make a backward looking judgement just based on a short payment history. This doesn’t mean that the company can’t pay a good dividend, but just that we want to wait until it can prove itself.
The Dividend Has Limited Growth Potential
Given that the track record hasn’t been stellar, we really want to see earnings per share growing over time. Afine Investments has seen EPS fall by 91% over the last 12 months. Decreases in earnings as large as this could start to put some pressure on the dividend if they are sustained for several years. Any one year of performance can be misleading for a variety of reasons, so we wouldn’t like to form any strong conclusions based on these numbers alone.
An additional note is that the company has been raising capital by issuing stock equal to 13% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus – perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
The Dividend Could Prove To Be Unreliable
In summary, dividends being cut isn’t ideal, however it can bring the payment into a more sustainable range. 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. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We’ve spotted 5 warning signs for Afine Investments (of which 1 is a bit concerning!) you should know about. 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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