Famous Brands Limited (JSE:FBR) Goes Ex-Dividend Soon

It looks like Famous Brands Limited (JSE:FBR) is about to go ex-dividend in the next three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Famous Brands' shares before the 12th of December in order to be eligible for the dividend, which will be paid on the 18th of December.

The company's upcoming dividend is R1.38 a share, following on from the last 12 months, when the company distributed a total of R3.71 per share to shareholders. Looking at the last 12 months of distributions, Famous Brands has a trailing yield of approximately 6.5% on its current stock price of ZAR56.8. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Famous Brands can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Famous Brands

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Its dividend payout ratio is 80% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. It could become a concern if earnings started to decline. A useful secondary check can be to evaluate whether Famous Brands generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (88%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that Famous Brands'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 how much of its profit Famous Brands paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Famous Brands's earnings have been skyrocketing, up 85% per annum for the past five years. Earnings per share are growing at a rapid rate, yet the company is paying out more than three-quarters of its earnings.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Famous Brands has lifted its dividend by approximately 4.0% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Famous Brands is keeping back more of its profits to grow the business.

The Bottom Line

Has Famous Brands got what it takes to maintain its dividend payments? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That's why we're glad to see Famous Brands's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 80% and 88% respectively. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Famous Brands's dividend merits.

So while Famous Brands looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 2 warning signs for Famous Brands you should know about.

A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.