Fonix Mobile’s (LON:FNX) upcoming dividend will be higher than last year

Fonix Mobile plc (LON:FNX) the dividend will increase from the payout for the same period last year to £0.045 on November 30. Based on this payout, the dividend yield for the company will be 3.8%, which is fairly typical for the industry.

Our analysis indicates that FNX is potentially undervalued!

Fonix Mobile payment has solid revenue coverage

We’re not too impressed with dividend yields unless they can be sustained over time. At the time of the last dividend payment, Fonix Mobile was paying out a very large portion of what it earned and 132% of cash flow. This is certainly a risk factor, as reduced cash flow could force the company to pay a lower dividend.

Next year is expected to see EPS increase by 27.5%. Assuming the dividend continues on the trajectory it has charted recently, our estimates show the payout ratio to be 43%, which puts it in a fairly comfortable range.

Fonix Mobile does not have a long payment history

The dividend is pretty stable with hindsight, but the company hasn’t paid one for very long. It is therefore difficult to judge how it would behave throughout a full economic cycle. As of 2020, the annual payment at the time was £0.034, compared to the most recent annual payment of £0.065. This means that it has increased its distributions by 38% per year during this period. The dividend has been rising rapidly, but with such a short payout history, we can’t know for sure if the payout can continue to rise over the long term, so caution may be warranted.

The dividend has limited growth potential

Investors in the company will be happy to have received dividend income for a while. However, first appearances could be deceiving. Earnings per share have fallen 24% over the past five years. This sharp decline may indicate that the company is going through a difficult period, which could limit its ability to pay a larger dividend each year in the future. However, next year actually looks positive, with profits expected to increase. We’d just wait for it to become a pattern before we get too excited.

Dividend could prove unreliable

Overall, we still like to see the dividend increase, but we don’t think Fonix Mobile will make a great income stock. Payouts are a bit high to be considered sustainable, and the track record isn’t the best. We don’t think Fonix Mobile is a great title to add to your portfolio if income is your priority.

Companies with a stable dividend policy are likely to enjoy greater investor interest than those that suffer from a more inconsistent approach. At the same time, there are other factors that our readers should be aware of before investing capital in a stock. For example, we identified 1 warning sign for Fonix Mobile which you should be aware of before investing. If you are a dividend investor, you can also consult our curated list of high yielding dividend stocks.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.