Frontera Energy's (TSE:FEC) Dividend Will Be $0.0625

The board of Frontera Energy Corporation (TSE:FEC) has announced that it will pay a dividend of $0.0625 per share on the 17th of July. This payment means the dividend yield will be 4.3%, which is below the average for the industry.

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Frontera Energy's Future Dividends May Potentially Be At Risk

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, the company was paying out 118% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 7.5%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

EPS is set to grow by 27.1% over the next year if recent trends continue. If the dividend continues on its recent course, the payout ratio in 12 months could be 110%, which is a bit high and could start applying pressure to the balance sheet.

Check out our latest analysis for Frontera Energy

Frontera Energy's Dividend Has Lacked Consistency

It's comforting to see that Frontera Energy has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. Since 2019, the annual payment back then was $0.488, compared to the most recent full-year payment of $0.179. The dividend has fallen 63% over that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Could Be Constrained

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. It's encouraging to see that Frontera Energy has been growing its earnings per share at 27% a year over the past five years. Strong earnings is nice to see, but unless this can be sustained on minimal reinvestment of profits, we would question whether dividends will follow suit.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. 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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