Franchise Group (NASDAQ:FRG) Is Due To Pay A Dividend Of $0.625
Franchise Group, Inc. (NASDAQ:FRG) has announced that it will pay a dividend of $0.625 per share on the 14th of April. The dividend yield will be 9.7% based on this payment which is still above the industry average.
See our latest analysis for Franchise Group
Franchise Group Might Find It Hard To Continue The Dividend
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Despite not generating a profit, Franchise Group is still paying a dividend. The company is also yet to generate cash flow, so the dividend sustainability is definitely questionable.
Over the next year, EPS is forecast to expand by 44.8%. This is the right direction to be moving, but it is not enough to achieve profitability. Unless this can be done in short order, the dividend might be difficult to sustain.
Franchise Group's Dividend Has Lacked Consistency
Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2015, the annual payment back then was $0.64, compared to the most recent full-year payment of $2.50. This works out to be a compound annual growth rate (CAGR) of approximately 19% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
The Company Could Face Some Challenges Growing The Dividend
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Franchise Group has impressed us by growing EPS at 34% per year over the past five years. While the company hasn't yet recorded a profit, the growth rates are healthy. If the company can turn a profit relatively soon, we can see this becoming a reliable income stock.
The Dividend Could Prove To Be Unreliable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Franchise Group's payments, as there could be some issues with sustaining them into the future. Strong earnings growth means Franchise Group has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. This company is not in the top tier of income providing stocks.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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 Franchise Group 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.
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