Forward Air Corporation (NASDAQ:FWRD) 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. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Forward Air's shares before the 26th of May in order to receive the dividend, which the company will pay on the 14th of June.
The company's next dividend payment will be US$0.21 per share. Last year, in total, the company distributed US$0.84 to shareholders. Calculating the last year's worth of payments shows that Forward Air has a trailing yield of 0.9% on the current share price of $93.46. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Forward Air's payout ratio is modest, at just 37% of profit. 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. Fortunately, it paid out only 48% of its free cash flow in the past 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.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Forward Air earnings per share are up 3.1% per annum over the last five years. Recent earnings growth has been limited. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Forward Air has delivered 12% dividend growth per year on average over the past 10 years. 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.
To Sum It Up
Is Forward Air an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Forward Air is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. 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. Forward Air looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example - Forward Air has 1 warning sign we think you should be aware of.
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.
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. 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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