Fonix Plc's (LON:FNX) investors are due to receive a payment of £0.029 per share on 4th of April. This takes the annual payment to 4.7% of the current stock price, which unfortunately is below what the industry is paying.

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Fonix's Projected Earnings Seem Likely To Cover Future Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. At the time of the last dividend payment, Fonix was paying out a very large proportion of what it was earning and 168% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Over the next year, EPS is forecast to expand by 0.7%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 52% which brings it into quite a comfortable range.

See our latest analysis for Fonix

Fonix Doesn't Have A Long Payment History

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The dividend has gone from an annual total of £0.034 in 2021 to the most recent total annual payment of £0.083. This implies that the company grew its distributions at a yearly rate of about 25% over that duration. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

Fonix Might Find It Hard To Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that Fonix has been growing its earnings per share at 13% a year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

Fonix's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Fonix will make a great income stock. Strong earnings growth means Fonix has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. This company is not in the top tier of income providing stocks.