Stock Analysis

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

  •  Updated
TSX:AI
Source: Shutterstock

The board of Atrium Mortgage Investment Corporation (TSE:AI) has announced that it will pay a dividend of CA$0.075 per share on the 14th of June. Based on this payment, the dividend yield on the company's stock will be 7.7%, which is an attractive boost to shareholder returns.

View our latest analysis for Atrium Mortgage Investment

Atrium Mortgage Investment Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Atrium Mortgage Investment's dividend made up quite a large proportion of earnings but only 61% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Earnings per share is forecast to rise by 3.5% over the next year. If the dividend continues on its recent course, the payout ratio in 12 months could be 97%, which is a bit high and could start applying pressure to the balance sheet.

historic-dividend
TSX:AI Historic Dividend May 8th 2022

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the dividend has gone from CA$0.83 to CA$0.97. This works out to be a compound annual growth rate (CAGR) of approximately 1.6% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

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. However, Atrium Mortgage Investment's EPS was effectively flat over the past five years, which could stop the company from paying more every year. Slow growth and a high payout ratio could mean that Atrium Mortgage Investment has maxed out the amount that it has been able to pay to shareholders. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Atrium Mortgage Investment's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Atrium Mortgage Investment is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Atrium Mortgage Investment that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Valuation is complex, but we're helping make it simple.

Find out whether Atrium Mortgage Investment is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis