The board of FLEX LNG Ltd. (NYSE:FLNG) has announced that it will be paying its dividend of $1.00 on the 5th of December, an increased payment from last year's comparable dividend. This will take the annual payment to 9.7% of the stock price, which is above what most companies in the industry pay.
Check out our latest analysis for FLEX LNG
FLEX LNG Is Paying Out More Than It Is Earning
If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the company was paying out 113% of what it was earning and 93% of cash flows. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.
Earnings per share could rise by 53.7% over the next year if things go the same way as they have for the last few years. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 136% over the next year.
FLEX LNG's Dividend Has Lacked Consistency
Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. The dividend has gone from an annual total of $0.40 in 2019 to the most recent total annual payment of $3.00. This implies that the company grew its distributions at a yearly rate of about 65% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
FLEX LNG's Dividend Might Lack Growth
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that FLEX LNG has grown earnings per share at 54% per year over the past five years. Strong earnings is nice to see, but unless this can be sustained on minimal reinvestment of profits, we would question whether dividends will follow suit.
The Dividend Could Prove To Be Unreliable
In summary, while it's always good to see the dividend being raised, we don't think FLEX LNG's payments are rock solid. Strong earnings growth means FLEX LNG has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We don't think FLEX LNG is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for FLEX LNG you should be aware of, and 2 of them shouldn't be ignored. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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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.