The board of Fonix Mobile plc (LON:FNX) has announced that it will be increasing its dividend by 18% on the 31st of March to £0.0236, up from last year's comparable payment of £0.02. This takes the annual payment to 3.4% of the current stock price, which is about average for the industry.

View our latest analysis for Fonix Mobile

Fonix Mobile's Dividend Is Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, Fonix Mobile was paying out quite a large proportion of both earnings and cash flow, with the dividend being 208% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

The next year is set to see EPS grow by 5.9%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 43% which brings it into quite a comfortable range. historic-dividend

Fonix Mobile Doesn't Have A Long Payment History

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. Since 2021, the annual payment back then was £0.034, compared to the most recent full-year payment of £0.065. This implies that the company grew its distributions at a yearly rate of about 38% over that duration. Fonix Mobile has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

Dividend Growth Potential Is Shaky

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though Fonix Mobile's EPS has declined at around 31% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.



Fonix Mobile's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Fonix Mobile's payments are rock solid. The payments are bit high to be considered sustainable, and the track record isn't the best. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Fonix Mobile that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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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