Is It Smart To Buy Frontier International Inc. (TSE:7050) Before It Goes Ex-Dividend?

Frontier International Inc. (TSE:7050) stock is about to trade ex-dividend in three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Frontier International's shares on or after the 26th of April, you won't be eligible to receive the dividend, when it is paid on the 31st of July.

The company's next dividend payment will be JP¥45.00 per share, and in the last 12 months, the company paid a total of JP¥58.00 per share. Based on the last year's worth of payments, Frontier International stock has a trailing yield of around 3.3% on the current share price of JP¥1738.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Frontier International has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Frontier International

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. Fortunately Frontier International's payout ratio is modest, at just 32% of profit. A useful secondary check can be to evaluate whether Frontier International generated enough free cash flow to afford its dividend. Fortunately, it paid out only 29% of its free cash flow in the past year.

It's positive to see that Frontier International's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're not enthused to see that Frontier International's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Recent growth has not been impressive. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Frontier International has delivered an average of 8.3% per year annual increase in its dividend, based on the past five years of dividend payments.

The Bottom Line

Should investors buy Frontier International for the upcoming dividend? The company has barely grown earnings per share over this time, but at least it's paying out a decently low percentage of its earnings and cashflow as dividends. This could suggest management is reinvesting in future growth opportunities. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine strong earnings per share growth with a low payout ratio, and Frontier International is halfway there. There's a lot to like about Frontier International, and we would prioritise taking a closer look at it.

In light of that, while Frontier International has an appealing dividend, it's worth knowing the risks involved with this stock. For example - Frontier International has 3 warning signs we think you should be aware of.

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.