Flight Centre Travel Group Limited (ASX:FLT) has announced that it will pay a dividend of A$0.11 per share on the 17th of April. This will take the annual payment to 3.7% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Flight Centre Travel Group

Flight Centre Travel Group's Payment Could Potentially Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. At the time of the last dividend payment, Flight Centre Travel Group was paying out a very large proportion of what it was earning and 97% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Over the next year, EPS is forecast to expand by 183.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 25%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the annual payment back then was A$1.52, compared to the most recent full-year payment of A$0.60. The dividend has shrunk at around 8.9% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Limited Growth Potential

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Flight Centre Travel Group's earnings per share has shrunk at 24% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Flight Centre Travel Group's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Flight Centre Travel Group will make a great income stock. 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.

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 Flight Centre Travel Group that investors should know about before committing capital to this stock. Is Flight Centre Travel Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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