Frontier Transport Holdings (JSE:FTH) Will Pay A Smaller Dividend Than Last Year

Frontier Transport Holdings Limited (JSE:FTH) is reducing its dividend from last year's comparable payment to ZAR0.242 on the 18th of June. The dividend yield of 8.8% is still a nice boost to shareholder returns, despite the cut.

View our latest analysis for Frontier Transport Holdings

Frontier Transport Holdings Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend was quite easily covered by Frontier Transport Holdings' earnings. This means that a large portion of its earnings are being retained to grow the business.

EPS is set to grow by 8.7% over the next year if recent trends continue. If the dividend continues on its recent course, the payout ratio in 12 months could be 167%, which is a bit high and could start applying pressure to the balance sheet.

Frontier Transport Holdings Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2018, the dividend has gone from ZAR0.28 total annually to ZAR0.592. This means that it has been growing its distributions at 13% per annum over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Has Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that Frontier Transport Holdings has been growing its earnings per share at 8.7% a year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

We Really Like Frontier Transport Holdings' Dividend

Overall, we think that Frontier Transport Holdings could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Frontier Transport Holdings 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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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.