Frontier Transport Holdings' (JSE:FTH) Shareholders Will Receive A Bigger Dividend Than Last Year

Frontier Transport Holdings Limited (JSE:FTH) has announced that it will be increasing its dividend on the 20th of December to R0.20. This takes the dividend yield from 9.2% to 9.2%, which shareholders will be pleased with.

View our latest analysis for Frontier Transport Holdings

Frontier Transport Holdings' Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Frontier Transport Holdings' dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

If the trend of the last few years continues, EPS will grow by 1.7% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 66%, which is in the range that makes us comfortable with the sustainability of the dividend.

Frontier Transport Holdings Doesn't Have A Long Payment History

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 3 years, which isn't that long in the grand scheme of things. Since 2018, the first annual payment was R0.28, compared to the most recent full-year payment of R0.46. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately, Frontier Transport Holdings' earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Frontier Transport Holdings is struggling to find viable investments, so it is returning more to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 4 warning signs for Frontier Transport Holdings (of which 1 is potentially serious!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.