The board of Firm Capital Mortgage Investment Corporation (TSE:FC) has announced that it will pay a dividend of CA$0.078 per share on the 15th of August. Based on this payment, the dividend yield on the company’s stock will be 8.1%, which is an attractive boost to shareholder returns.
Firm Capital Mortgage Investment Not Expected To Earn Enough To Cover Its Payments
A big dividend yield for a few years doesn’t mean much if it can’t be sustained.
Firm Capital Mortgage Investment has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. While there are no guarantees that Firm Capital Mortgage Investment will always be able to pay out a dividend, the company’s payout ratio sits at 99%. This is a sign that Firm Capital Mortgage Investment is barely covering its dividend.
Looking forward, EPS could fall by 3.1% if the company can’t turn things around from the last few years. If the dividend continues along recent trends, we estimate the future payout ratio could reach 110%, which could put the dividend in jeopardy if the company’s earnings don’t improve.
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. The annual payment during the last 10 years was CA$0.99 in 2012, and the most recent fiscal year payment was CA$0.948. The dividend has shrunk at a rate of less than 1% a year over this period. 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 Dividend’s Growth Prospects Are Limited
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Firm Capital Mortgage Investment has seen earnings per share falling at 3.1% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely – the opposite of dividend growth.
We should note that Firm Capital Mortgage Investment has issued stock equal to 12% of shares outstanding. Regularly doing this can be detrimental – it’s hard to grow dividends per share when new shares are regularly being created.
We’re Not Big Fans Of Firm Capital Mortgage Investment’s Dividend
In summary, while it is good to see that the dividend hasn’t been cut, we think that at current levels the payment isn’t particularly sustainable. The company’s earnings aren’t high enough to be making such big distributions, and it isn’t backed up by strong growth or consistency either. We don’t think that this is a great candidate to be an income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we’ve identified 2 warning signs for Firm Capital Mortgage Investment that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here