Frontier Management's (TSE:7038) Upcoming Dividend Will Be Larger Than Last Year's

Frontier Management Inc. (TSE:7038) has announced that it will be increasing its periodic dividend on the 28th of March to ¥42.00, which will be 2.4% higher than last year's comparable payment amount of ¥41.00. This will take the dividend yield to an attractive 5.3%, providing a nice boost to shareholder returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Frontier Management's stock price has reduced by 32% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

Check out our latest analysis for Frontier Management

Frontier Management's Future Dividends May Potentially Be At Risk

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before this announcement, Frontier Management was paying out 340% of what it was earning, and not generating any free cash flows either. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

If the company can't turn things around, EPS could fall by 0.4% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 446%, which is definitely a bit high to be sustainable going forward.

Frontier Management Is Still Building Its Track Record

It is great to see that Frontier Management has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The annual payment during the last 6 years was ¥12.50 in 2018, and the most recent fiscal year payment was ¥41.00. This implies that the company grew its distributions at a yearly rate of about 22% over that duration. 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's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. Although it's important to note that Frontier Management's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

We're Not Big Fans Of Frontier Management's Dividend

In summary, investors will like to be receiving a higher dividend, but we have some questions about whether it can be sustained over the long term. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. We don't think that this is a great candidate to be an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 4 warning signs for Frontier Management (of which 2 are concerning!) you should know about. 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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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.