Why It Might Not Make Sense To Buy Fonix Mobile plc (LON:FNX) For Its Upcoming Dividend

Fonix Mobile plc ( LON:FNX ) stock is about to trade ex-dividend in three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Fonix Mobile's shares on or after the 16th of November, you won't be eligible to receive the dividend, when it is paid on the 30th of November.

The company's next dividend payment will be UK£0.049 per share, on the back of last year when the company paid a total of UK£0.072 to shareholders. Based on the last year's worth of payments, Fonix Mobile stock has a trailing yield of around 3.9% on the current share price of £1.87. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Fonix Mobile

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. It paid out 82% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Click here to see how much of its profit Fonix Mobile paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. While astute readers will note a decline in Fonix Mobile's earnings per share, this is actually attributable to a major dilution event that occurred in the process of Fonix Mobile's admission to the AIM exchange. If we have a look at the underlying earnings performance, we can see Fonix Mobile has actually grown earnings at 19.17% annually over the last 5 years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Fonix Mobile has delivered an average of 29% per year annual increase in its dividend, based on the past three years of dividend payments. 

The Bottom Line

From a dividend perspective, should investors buy or avoid Fonix Mobile? We're quite pleased to see Fonix Mobile's underlying earnings grow over the last five years, and the fact that the company pays out more than half of its earnings as dividends to shareholders could be an indication of a healthy approach to growth while delivering shareholder value. These characteristics generally lead to outstanding dividend performance, and investors may be happy with the results of owning this stock for its dividend.

Although, if you're still interested in Fonix Mobile and want to know more, you'll find it very useful to know what risks this stock faces. Every company has risks, and we've spotted 1 warning sign for Fonix Mobile you should know about.

A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.