Firm Capital Mortgage Investment Corporation (TSE:FC) will pay a dividend of CA$0.078 on the 17th of July. Based on this payment, the dividend yield on the company’s stock will be 9.0%, which is an attractive boost to shareholder returns.
View our latest analysis for Firm Capital Mortgage Investment
Firm Capital Mortgage Investment Doesn’t Earn Enough To Cover Its Payments
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 98% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 58%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
If the company can’t turn things around, EPS could fall by 0.02% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 99%, which is definitely a bit high to be sustainable going forward.
Dividend Volatility
The company has a long dividend track record, but it doesn’t look great with cuts in the past. Since 2013, the annual payment back then was CA$0.99, compared to the most recent full-year payment of CA$0.95. Dividend payments have shrunk at a rate of less than 1% per annum over this time frame. 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
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Firm Capital Mortgage Investment hasn’t seen much change in its earnings per share over the last five years.
The Dividend Could Prove To Be Unreliable
Overall, we don’t think this company makes a great dividend stock, even though the dividend wasn’t cut this year. The payments haven’t been particularly stable and we don’t see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we’ve picked out 2 warning signs for Firm Capital Mortgage Investment that investors should take into consideration. Is Firm Capital Mortgage Investment not quite the opportunity you were looking for? Why not check out our selection of top 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.
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