Capital Mortgage Investment Corporation Firm (TSE: FC) will pay a dividend of C $ 0.078 on September 15th. This means that the annual payment is 6.2% of the current share price, which is higher than the industry average.
Capital investments in mortgages do not bring in enough funds to cover their payments
We love seeing high dividend yields, but it doesn’t matter if the payouts are not sustainable. Prior to this announcement, the company paid out 100% of what it earned, but dividends were fairly comfortably covered by free cash flows with a payout ratio of just 74%. We generally think that cash is more important than accounting for earnings, so given that cash flows easily cover dividends, we don’t think there is much to worry about.
If recent trends continue, EPS will decline 1.3% over the next 12 months. If dividends continue in the same direction as recently, the payout ratio in 12 months could be 103%, which is certainly slightly higher to be sustainable in the future.
Volatility of dividends
The company’s dividend history has been marked by volatility, with at least one cut in the past 10 years. Since 2011, the first annual payment was CAD 1.04, compared to the last full annual payment of CAD 0.94. Dividend payments fell by less than 1% per year over this time period. As a rule, we do not like it when dividends decline over time, as this can reduce the return to shareholders and indicate that the company may be in trouble.
Dividend growth prospects are limited
With relatively volatile dividends, it is even more important to assess whether earnings per share are growing, which could indicate an increase in dividends in the future. Unfortunately, Firm Capital Mortgage Investment’s earnings per share have remained largely unchanged over the past five years, which means that dividends cannot increase every year.
Dividends May Be Unreliable
So while it is good to see that dividends have not been cut, we are a little wary of Firm Capital Mortgage Investment payouts as there may be some problems maintaining them in the future. Payouts have been volatile in the past, but dividends can be reliable in the short term as the company generates enough cash to cover them. This company is not part of the high income group of companies.
Companies with stable dividend policies are likely to enjoy more investor interest than companies suffering from a more inconsistent approach. Meanwhile, despite the importance of paying dividends, these are not the only factors our readers should be aware of when evaluating a company. For example, we chose 3 Warning Signs For Investing In Equity Mortgages what investors need to know before investing in these stocks. Looking for more profitable dividend ideas? Try our a curated list of strong dividend payers.
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