Famous Brands (JSE:FBR) increases its dividend to ZAR 2.33

Famous Brands Limited’s (JSE:FBR) The dividend will increase to ZAR2.33 per share on July 10, compared to the payment made in the same period last year. This makes the annual payment 7.5% of the current share price, which is roughly in line with the industry average.

Check out our latest analysis for famous brands

Payment of famous brands shows solid revenue coverage

Unless the payments are sustainable, the dividend yield isn’t all that meaningful. Before this announcement, Famous Brands was covering its dividend quite comfortably with earnings and paying out more than 75% of its free cash flow to shareholders. The company clearly earns enough to pay this kind of dividend, but it’s clearly focused on paying out money to shareholders rather than growing the business.

Next year, earnings per share could grow by 89.1% if recent trends continue. If the dividend follows recent trends, we estimate the payout ratio to be 36%, which is in the range where we are comfortable with the sustainability of the dividend.

Dividend volatility

The company’s dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the dividend has increased from a total of ZAR2.00 per annum to ZAR4.66 per annum. This means that the company has increased its payouts by about 8.8% per annum over this period. A reasonable dividend growth rate is encouraging, but we are concerned that the dividend history is not as solid as we would like, as it has been cut at least once.

The dividend is likely to increase

Since the dividend has been cut in the past, we need to look at whether earnings are growing and whether this could lead to higher dividends in the future. It is encouraging to see that Famous Brands has been able to grow its earnings per share by 89% per year over the past five years. The company’s earnings per share have grown rapidly in recent years and there is a good balance between reinvestment and dividend payouts to shareholders. Therefore, we believe Famous Brands could prove to be a strong dividend payer.

Our thoughts on the dividend of famous brands

Overall, we’re always happy to see dividend increases, but we don’t think Famous Brands will be a good dividend stock. The low payout ratio is a positive, but overall we’re not too happy with Famous Brands’ payments. We’d probably look elsewhere for a dividend investment.

Market movements show how much a consistent dividend policy is valued compared to a more erratic one. However, investors need to consider other aspects when analyzing stock performance. For example, we have selected the following: 2 warning signs for famous brands investors should know before investing capital in this stock. If you are a dividend investor, you may also want to take a look at our curated list of high dividend stocks.

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This Simply Wall St article is of a general nature. We comment solely on historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.

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