Frontier Transport Holdings Limited (JSE:FTH) stock is about to trade ex-dividend in 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Frontier Transport Holdings investors that purchase the stock on or after the 11th of December will not receive the dividend, which will be paid on the 17th of December.
The company's next dividend payment will be R00.259 per share, on the back of last year when the company paid a total of R0.48 to shareholders. Last year's total dividend payments show that Frontier Transport Holdings has a trailing yield of 6.3% on the current share price of R07.70. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Frontier Transport Holdings can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Frontier Transport Holdings
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see Frontier Transport Holdings paying out a modest 37% of its earnings. A useful secondary check can be to evaluate whether Frontier Transport Holdings generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 201% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how Frontier Transport Holdings intends to continue funding this dividend, or if it could be forced to cut the payment.
While Frontier Transport Holdings's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Frontier Transport Holdings's ability to maintain its dividend.
Click here to see how much of its profit Frontier Transport Holdings paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Frontier Transport Holdings's earnings per share have risen 11% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.