Freightways Group (NZSE:FRW) Will Pay A Dividend Of NZ$0.2118

Freightways Group Limited (NZSE:FRW) will pay a dividend of NZ$0.2118 on the 2nd of April. This makes the dividend yield 4.5%, which is above the industry average.

See our latest analysis for Freightways Group

Freightways Group's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before this announcement, Freightways Group was paying out 93% of earnings, but a comparatively small 64% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

EPS is set to grow by 44.2% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 80% which is a bit high but can definitely be sustainable.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from NZ$0.185 total annually to NZ$0.37. This implies that the company grew its distributions at a yearly rate of about 7.2% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Freightways Group might have put its house in order since then, but we remain cautious.

Freightways Group May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Freightways Group hasn't seen much change in its earnings per share over the last five years.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Freightways Group that investors should know about before committing capital to this stock. 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.