It Might Not Be A Great Idea To Buy Public Joint Stock Company ALROSA (MCX:ALRS) For Its Next Dividend

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(simplywall.st) - Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. ALROSA distributed an unsustainably high 114% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. ALROSA paid out more free cash flow than it generated – 131%, to be precise – last year, which we think is concerningly high. It’s hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we’d wonder how the company justifies this payout level. As ALROSA’s dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.