Stock Analysis

Atrium Mortgage Investment (TSE:AI) Is Due To Pay A Dividend Of CA$0.075

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TSX:AI
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The board of Atrium Mortgage Investment Corporation (TSE:AI) has announced that it will pay a dividend on the 14th of September, with investors receiving CA$0.075 per share. This makes the dividend yield 6.2%, which will augment investor returns quite nicely.

See our latest analysis for Atrium Mortgage Investment

Atrium Mortgage Investment's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Atrium Mortgage Investment's profits didn't cover the dividend, but the company was generating enough cash instead. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Over the next year, EPS is forecast to expand by 6.3%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 91%. This is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

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TSX:AI Historic Dividend August 8th 2021

Atrium Mortgage Investment's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2012, the dividend has gone from CA$0.83 to CA$0.92. This works out to be a compound annual growth rate (CAGR) of approximately 1.2% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Atrium Mortgage Investment hasn't seen much change in its earnings per share over the last five years. The company is paying out a lot of its profits, even though it is growing those profits pretty slowly. As they say in finance, 'past performance is not indicative of future performance', but we are not confident a company with limited earnings growth and a high payout ratio will be a star dividend-payer over the next decade.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Atrium Mortgage Investment that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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