There's A Lot To Like About Frontline's (NYSE:FRO) Upcoming US$0.30 Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Frontline plc (NYSE:FRO) is about to trade ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. In other words, investors can purchase Frontline's shares before the 14th of December in order to be eligible for the dividend, which will be paid on the 29th of December.
The company's next dividend payment will be US$0.30 per share. Last year, in total, the company distributed US$1.22 to shareholders. Looking at the last 12 months of distributions, Frontline has a trailing yield of approximately 6.3% on its current stock price of $19.34. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Frontline can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Frontline
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Frontline is paying out an acceptable 74% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 82% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
It's positive to see that Frontline's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Frontline has grown its earnings rapidly, up 39% a year for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Frontline has delivered an average of 2.5% per year annual increase in its dividend, based on the past eight years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because Frontline is keeping back more of its profits to grow the business.
To Sum It Up
Is Frontline an attractive dividend stock, or better left on the shelf? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That's why we're glad to see Frontline's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 74% and 82% respectively. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Frontline's dividend merits.
While it's tempting to invest in Frontline for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 2 warning signs for Frontline you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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.
