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Frontera Energy Corporation (TSE:FEC) will pay a dividend of $0.0625 on the 16th of April. This payment means the dividend yield will be 3.7%, which is below the average for the industry.
View our latest analysis for Frontera Energy
Frontera Energy Might Find It Hard To Continue The Dividend
If it is predictable over a long period, even low dividend yields can be attractive. Even though Frontera Energy isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.
Looking forward, earnings per share could rise by 25.9% over the next year if the trend from the last few years continues. We like to see the company moving towards profitability, but this probably won't be enough for it to post positive net income this year. The positive free cash flows give us some comfort, however, that the dividend could continue to be sustained.
Frontera Energy's Dividend Has Lacked Consistency
Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2019, the annual payment back then was $0.488, compared to the most recent full-year payment of $0.173. This works out to a decline of approximately 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.
The Company Could Face Some Challenges Growing The Dividend
Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Frontera Energy has seen EPS rising for the last five years, at 26% per annum. Even though the company is not profitable, it is growing at a solid clip. If this trajectory continues and the company can turn a profit soon, it could bode well for the dividend going forward.
Our Thoughts On Frontera Energy's Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. 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. Overall, we don't think this company has the makings of a good income stock.