The Alumina share price is up 16% this year – Is now the time to buy?

Alumina Limited (ASX: AWC) is currently the highest yielding stock on the ASX with a juicy 12%, fully-franked dividend yield for investors.

Alumina’s share price is currently $2.57 and is up 15.8% this year alone – so is this share one of the best buys on the market?

The good news for Alumina

Alumina has been on the charge in the early part of the year despite missing estimates in its February half-year earnings release. The world’s largest alumina refinery, Alunorte in Brazil, remains out of action which has restricted global supply and pushed alumina prices to record highs to start the year.

Alumina reported an 87% increase on prior corresponding period (pcp) in statutory net profit after tax (NPAT) to $635.4 million in the full-year, missing estimates of ~$690 million by a significant margin.

On an adjusted basis, the company’s $689.9 million NPAT was more in line with expectations as management cited the tight Western alumina market following “severe disruptions in 2018”.

The company’s net receipts from its joint venture Alcoa World Alumina & Chemicals (AWAC) rose 158% on pcp to US$678.2 million for the year.

Management also cemented Alumina’s place as the top dividend stock on the ASX as it increased the interim dividend to 8.6 cents per share, franked to 100%.

So, what’s the catch?

Alumina remains subject to global alumina prices and the recommencement of operations at Alunorte would push prices lower and place pressure on the company’s profitability. Alumina is effectively a holding company which derives its income from its 40% stake in the Alcoa World Alumina and Chemicals (AWAC) joint venture with Alcoa Corporation.

The other big risk facing not just Alumina but many of the top dividend stocks which are franked to 100% like National Australia Bank Limited (ASX: NAB) and IOOF Holdings Ltd (ASX: IFL) is the likely changes to the imputation tax system under a Federal Labor government.

With the May Federal Election now looming, and Labor looking very likely to be leading a government in one shape or another, investors should be wary of diving into fully-franked shares like Alumina just for the dividend and/or tax benefits.

For those who are looking for more income than growth, these buy-rated growth shares are worth a look to fuel further growth in your portfolio.

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Motley Fool contributor Lachlan Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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