Frontier Transport Holdings Limited (JSE:FTH) Will Pay A R00.259 Dividend In Four Days

It looks like Frontier Transport Holdings Limited (JSE:FTH) is about to go ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Frontier Transport Holdings' shares on or after the 11th of December, you won't be eligible to receive the dividend, when it is paid on the 17th of December.

The company's next dividend payment will be R00.259 per share, and in the last 12 months, the company paid a total of R0.48 per share. Looking at the last 12 months of distributions, Frontier Transport Holdings has a trailing yield of approximately 6.3% on its current stock price of R07.70. If you buy this business for its dividend, you should have an idea of whether Frontier Transport Holdings's dividend is reliable and sustainable. As a result, readers should always check whether Frontier Transport Holdings has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Frontier Transport Holdings

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Frontier Transport Holdings's payout ratio is modest, at just 37% of profit. A useful secondary check can be to evaluate whether Frontier Transport Holdings generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 201% of what it generated in free cash flow, a disturbingly high percentage. Our definition of free cash flow excludes cash generated from asset sales, so since Frontier Transport Holdings is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

While Frontier Transport Holdings's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Frontier Transport Holdings to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Frontier Transport Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Frontier Transport Holdings's earnings per share have been growing at 11% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past six years, Frontier Transport Holdings has increased its dividend at approximately 9.6% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Should investors buy Frontier Transport Holdings for the upcoming dividend? We like that Frontier Transport Holdings has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Our analysis shows 2 warning signs for Frontier Transport Holdings that we strongly recommend you have a look at before investing in the company.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.