Is Fleetwood Limited (ASX:FWD) A Smart Pick For Income Investors?

Could Fleetwood Limited (ASX:FWD) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. Yet sometimes, investors buy a popular dividend stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

A 2.5% yield is nothing to get excited about, but investors probably think the long payment history suggests Fleetwood has some staying power. Some simple analysis can reduce the risk of holding Fleetwood for its dividend, and we'll focus on the most important aspects below.

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Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Although Fleetwood pays a dividend, it was loss-making during the past year. When a company is loss-making, we next need to check to see if its cash flows can support the dividend.

With a strong net cash balance, Fleetwood investors may not have much to worry about in the near term from a dividend perspective.

Consider getting our latest analysis on Fleetwood's financial position here.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. For the purpose of this article, we only scrutinise the last decade of Fleetwood's dividend payments. The dividend has been cut on at least one occasion historically. During the past 10-year period, the first annual payment was AU$0.7 in 2010, compared to AU$0.05 last year. Dividend payments have fallen sharply, down 92% over that time.

A shrinking dividend over a 10-year period is not ideal, and we'd be concerned about investing in a dividend stock that lacks a solid record of growing dividends per share.

Dividend Growth Potential

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. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see Fleetwood has grown its earnings per share at 35% per annum over the past five years.

Conclusion

To summarise, shareholders should always check that Fleetwood's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. First, it's not great to see a dividend being paid despite the company being unprofitable over the last year. We were also glad to see it growing earnings, but it was concerning to see the dividend has been cut at least once in the past. Fleetwood might not be a bad business, but it doesn't show all of the characteristics we look for in a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Fleetwood that investors should know about before committing capital to this stock.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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This article by Simply Wall St is general in nature. 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.
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