Freightways Group (NZSE:FRW) Will Pay A Dividend Of NZ$0.2235

Freightways Group Limited (NZSE:FRW) has announced that it will pay a dividend of NZ$0.2235 per share on the 2nd of October. This makes the dividend yield 4.3%, which will augment investor returns quite nicely.

See our latest analysis for Freightways Group

Freightways Group's Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Freightways Group's dividend made up quite a large proportion of earnings but only 55% of free cash flows. This leaves plenty of cash for reinvestment into the business.

The next year is set to see EPS grow by 37.9%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 73% which brings it into quite a comfortable range.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the dividend has gone from NZ$0.19 total annually to NZ$0.37. This means that it has been growing its distributions at 6.9% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Freightways Group hasn't seen much change in its earnings per share over the last five years. Slow growth and a high payout ratio could mean that Freightways Group has maxed out the amount that it has been able to pay to shareholders. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

Our Thoughts On Freightways Group's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Freightways Group's payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 3 warning signs for Freightways Group that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.