Frontera Energy (TSE:FEC) Is Paying Out A Dividend Of $0.0625

The board of Frontera Energy Corporation (TSE:FEC) has announced that it will pay a dividend on the 17th of July, with investors receiving $0.0625 per share. Based on this payment, the dividend yield will be 4.7%, which is fairly typical for the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Frontera Energy's stock price has reduced by 35% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

We've discovered 2 warning signs about Frontera Energy. View them for free.

Estimates Indicate Frontera Energy's Could Struggle to Maintain Dividend Payments In The Future

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Before making this announcement, Frontera Energy's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Over the next year, EPS could expand by 27.1% if the company continues along the path it has been on recently. Assuming the dividend continues along recent trends, we think the payout ratio could reach 109%, which probably can't continue without starting to put some pressure on the balance sheet.

View our latest analysis for Frontera Energy

Frontera Energy's Dividend Has Lacked Consistency

Looking back, Frontera Energy's dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2019, the annual payment back then was $0.488, compared to the most recent full-year payment of $0.173. Dividend payments have fallen sharply, down 65% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Frontera Energy's Dividend Might Lack Growth

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Frontera Energy has seen EPS rising for the last five years, at 27% per annum. EPS has been growing well, but Frontera Energy has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

Our Thoughts On Frontera Energy's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Frontera Energy's payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think Frontera Energy is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Frontera Energy that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.