Four Days Left To Buy Freightways Group Limited (NZSE:FRW) Before The Ex-Dividend Date

Freightways Group Limited (NZSE:FRW) is about to trade ex-dividend in the next 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. Accordingly, Freightways Group investors that purchase the stock on or after the 14th of September will not receive the dividend, which will be paid on the 2nd of October.

The company's upcoming dividend is NZ$0.22 a share, following on from the last 12 months, when the company distributed a total of NZ$0.37 per share to shareholders. Based on the last year's worth of payments, Freightways Group has a trailing yield of 4.5% on the current stock price of NZ$8.3. If you buy this business for its dividend, you should have an idea of whether Freightways Group's dividend is reliable and sustainable. So we need to investigate whether Freightways Group can afford its dividend, and if the dividend could grow.

See our latest analysis for Freightways Group

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. It paid out 86% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out more than half (54%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Freightways Group'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?

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 fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that Freightways Group's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. A high payout ratio of 86% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Freightways Group could be signalling that its future growth prospects are thin.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Freightways Group has delivered 6.9% dividend growth per year on average over the past 10 years.

To Sum It Up

Has Freightways Group got what it takes to maintain its dividend payments? Freightways Group has struggled to grow its earnings per share, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear unsustainable. All things considered, we are not particularly enthused about Freightways Group from a dividend perspective.

With that being said, if dividends aren't your biggest concern with Freightways Group, you should know about the other risks facing this business. For example, we've found 3 warning signs for Freightways Group that we recommend you consider before investing in the business.

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.