Stock Analysis

Fonix Mobile (LON:FNX) Has Announced That It Will Be Increasing Its Dividend To £0.0236

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Fonix Mobile plc's (LON:FNX) periodic dividend will be increasing on the 31st of March to £0.0236, with investors receiving 18% more than last year's £0.02. This takes the annual payment to 3.4% of the current stock price, which is about average for the industry.

Check out our latest analysis for Fonix Mobile

Fonix Mobile's Dividend Is Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. At the time of the last dividend payment, Fonix Mobile was paying out a very large proportion of what it was earning and 208% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Over the next year, EPS is forecast to expand by 5.9%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 43% which brings it into quite a comfortable range.

AIM:FNX Historic Dividend March 16th 2023

Fonix Mobile 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 annual payment during the last 2 years was £0.034 in 2021, and the most recent fiscal year payment was £0.065. This means that it has been growing its distributions at 38% per annum over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Has Limited Growth Potential

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. Earnings per share has been sinking by 31% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Fonix Mobile will make a great income stock. 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Fonix Mobile that investors should take into consideration. Is Fonix Mobile not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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