Forward Air Corporation (NASDAQ:FWRD) Looks Like A Good Stock, And It's Going Ex-Dividend Soon
Forward Air Corporation (NASDAQ:FWRD) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 4th of March in order to receive the dividend, which the company will pay on the 20th of March.
Forward Air's next dividend payment will be US$0.18 per share, on the back of last year when the company paid a total of US$0.72 to shareholders. Based on the last year's worth of payments, Forward Air has a trailing yield of 1.2% on the current stock price of $60.21. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Forward Air
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. Forward Air has a low and conservative payout ratio of just 24% of its income after tax. A useful secondary check can be to evaluate whether Forward Air generated enough free cash flow to afford its dividend. The good news is it paid out just 16% of its free cash flow in the last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. This is why it's a relief to see Forward Air earnings per share are up 9.0% per annum over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Forward Air has delivered an average of 9.9% per year annual increase in its dividend, based on the past ten years of dividend payments. 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.
The Bottom Line
Is Forward Air worth buying for its dividend? Earnings per share growth has been growing somewhat, and Forward Air is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Forward Air is being conservative with its dividend payouts and could still perform reasonably over the long run. It's a promising combination that should mark this company worthy of closer attention.
Wondering what the future holds for Forward Air? See what the five analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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