Friedman Industries (NASDAQ:FRD) Has Announced A Dividend Of $0.04

Friedman Industries, Incorporated (NASDAQ:FRD) will pay a dividend of $0.04 on the 13th of February. This means the annual payment will be 0.7% of the current stock price, which is lower than the industry average.

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Friedman Industries' Payment Could Potentially Have Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Friedman Industries was paying a whopping 253% as a dividend, but this only made up 9.8% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Looking forward, EPS could fall by 5.3% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could be 11%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Check out our latest analysis for Friedman Industries

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of $0.04 in 2015 to the most recent total annual payment of $0.16. This means that it has been growing its distributions at 15% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth May Be Hard To Come By

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Over the past five years, it looks as though Friedman Industries' EPS has declined at around 5.3% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Friedman Industries' payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Friedman Industries that investors need to be conscious of moving forward. 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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