Freightways Limited (NZSE:FRE) Stock Goes Ex-Dividend In Just Four Days

Freightways Limited (NZSE:FRE) is about to trade ex-dividend in the next four days. Ex-dividend means that investors that purchase the stock on or after the 11th of March will not receive this dividend, which will be paid on the 1st of April.

Freightways's next dividend payment will be NZ$0.18 per share. Last year, in total, the company distributed NZ$0.31 to shareholders. Calculating the last year's worth of payments shows that Freightways has a trailing yield of 2.8% on the current share price of NZ$10.89. If you buy this business for its dividend, you should have an idea of whether Freightways's dividend is reliable and sustainable. So we need to investigate whether Freightways can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Freightways

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. Freightways paid out 63% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Luckily it paid out just 16% of its free cash flow last year.

It's positive to see that Freightways'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 the company's payout ratio, plus analyst estimates of its future dividends.

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. So we're not too excited that Freightways's earnings are down 2.8% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Freightways has delivered an average of 7.2% per year annual increase in its dividend, based on the past 10 years of dividend payments. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

The Bottom Line

Is Freightways worth buying for its dividend? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. To summarise, Freightways looks okay on this analysis, although it doesn't appear a stand-out opportunity.

So if you want to do more digging on Freightways, you'll find it worthwhile knowing the risks that this stock faces. Every company has risks, and we've spotted 5 warning signs for Freightways you should know about.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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