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FIH group plc (LON:FIH) will increase its dividend on the 30th of October to £0.155, which is 192% higher than last year's payment from the same period of £0.053. This takes the annual payment to 2.5% of the current stock price, which is about average for the industry.
Check out our latest analysis for FIH group
Estimates Indicate FIH group's Could Struggle to Maintain Dividend Payments In The Future
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, FIH group's earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.
Looking forward, EPS could fall by 8.4% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 106%, which is definitely a bit high to be sustainable going forward.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was £0.115, compared to the most recent full-year payment of £0.0675. Doing the maths, this is a decline of about 5.2% per year. A company that decreases its dividend over time generally isn't what we are looking for.
Dividend Growth May Be Hard To Come By
Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. In the last five years, FIH group's earnings per share has shrunk at approximately 8.4% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.
The Dividend Could Prove To Be Unreliable
In summary, while it's always good to see the dividend being raised, we don't think FIH group's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 3 warning signs for FIH 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.