Fonix Mobile's (LON:FNX) Dividend Will Be Increased To £0.045

The board of Fonix Mobile plc (LON:FNX) has announced that it will be paying its dividend of £0.045 on the 30th of November, an increased payment from last year's comparable dividend. Based on this payment, the dividend yield for the company will be 3.2%, which is fairly typical for the industry.

See our latest analysis for Fonix Mobile

Fonix Mobile's Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Fonix Mobile was paying out quite a large proportion of both earnings and cash flow, with the dividend being 132% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Looking forward, earnings per share is forecast to rise by 27.5% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 43% which would be quite comfortable going to take the dividend forward.

Fonix Mobile Is Still Building Its Track Record

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 2 years, which isn't that long in the grand scheme of things. The dividend has gone from an annual total of £0.034 in 2020 to the most recent total annual payment of £0.065. This means that it has been growing its distributions at 38% per annum over that time. Fonix Mobile has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

Dividend Growth Potential Is Shaky

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. Fonix Mobile's EPS has fallen by approximately 24% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. 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, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments are bit high to be considered sustainable, and the track record isn't the best. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Fonix Mobile that investors need to be conscious of moving forward. 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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