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We Wouldn't Be Too Quick To Buy FFI Holdings Limited (ASX:FFI) Before It Goes Ex-Dividend

Simply Wall St

It looks like FFI Holdings Limited (ASX:FFI) is about to go ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 16th of March will not receive the dividend, which will be paid on the 27th of March.

FFI Holdings's next dividend payment will be AU$0.11 per share. Last year, in total, the company distributed AU$0.24 to shareholders. Last year's total dividend payments show that FFI Holdings has a trailing yield of 4.8% on the current share price of A$4.98. If you buy this business for its dividend, you should have an idea of whether FFI Holdings's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for FFI Holdings

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. FFI Holdings paid out 69% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out more than three-quarters (86%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

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 how much of its profit FFI Holdings paid out over the last 12 months.

ASX:FFI Historical Dividend Yield, March 11th 2020

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that FFI Holdings's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. FFI Holdings has delivered an average of 2.9% per year annual increase in its dividend, based on the past ten years of dividend payments.

To Sum It Up

Is FFI Holdings an attractive dividend stock, or better left on the shelf? While earnings per share are flat, at least FFI Holdings has not committed itself to an unsustainable dividend, with its earnings and cashflow payout ratios within reasonable bounds. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that in mind though, if the poor dividend characteristics of FFI Holdings don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 2 warning signs for FFI Holdings that you should be aware of before investing in their shares.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.