There's A Lot To Like About Fonix Mobile's (LON:FNX) Upcoming UK£0.02 Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Fonix Mobile plc (LON:FNX) is about to go ex-dividend in just 2 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Fonix Mobile's shares before the 24th of March in order to receive the dividend, which the company will pay on the 31st of March.

The company's next dividend payment will be UK£0.02 per share, and in the last 12 months, the company paid a total of UK£0.052 per share. Based on the last year's worth of payments, Fonix Mobile stock has a trailing yield of around 3.3% on the current share price of £1.58. 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.

View our latest analysis for Fonix Mobile

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fonix Mobile paid out 73% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out an unsustainably high 1,165% of its free cash flow as dividends over the past 12 months, which is worrying. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

Fonix Mobile paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Fonix Mobile's ability to maintain its dividend.

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fonix Mobile's earnings per share have fallen at approximately 17% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Unfortunately Fonix Mobile has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

To Sum It Up

Is Fonix Mobile worth buying for its dividend? It's definitely not great to see earnings per share shrinking. The company paid out an acceptable percentage of its income, but an uncomfortably high percentage of its cash flow over the past year. Bottom line: Fonix Mobile has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

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. Case in point: We've spotted 1 warning sign for Fonix Mobile you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.