Finbar Group (ASX:FRI) Has Affirmed Its Dividend Of AU$0.02

Finbar Group Limited (ASX:FRI) has announced that it will pay a dividend of AU$0.02 per share on the 9th of September. This means the annual payment is 5.7% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Finbar Group

Finbar Group's Earnings Easily Cover the Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Finbar Group's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 118% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

If the trend of the last few years continues, EPS will grow by 6.4% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 61%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from AU$0.09 in 2012 to the most recent annual payment of AU$0.04. Doing the maths, this is a decline of about 7.8% per year. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Growth Potential

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. We are encouraged to see that Finbar Group has grown earnings per share at 6.4% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

Finbar Group's Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The track record isn't great, and the payments are a bit high to be considered sustainable. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Finbar Group that investors should know about before committing capital to this stock. 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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