Stock Analysis

Atrium Mortgage Investment's (TSE:AI) Dividend Will Be 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 11th of February, with investors receiving CA$0.075 per share. This makes the dividend yield 6.4%, which will augment investor returns quite nicely.

View our latest analysis for Atrium Mortgage Investment

Atrium Mortgage Investment's Earnings Easily Cover the Distributions

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 74% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Earnings per share is forecast to rise by 4.4% over the next year. If the dividend continues growing along recent trends, we estimate the payout ratio could reach 91%, which is on the higher side, but certainly still feasible.

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TSX:AI Historic Dividend January 15th 2022

Atrium Mortgage Investment's Dividend Has Lacked Consistency

It's comforting to see that Atrium Mortgage Investment has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. The first annual payment during the last 9 years was CA$0.83 in 2013, and the most recent fiscal year payment was CA$0.92. This implies that the company grew its distributions at a yearly rate of about 1.2% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Dividend Growth May Be Hard To Achieve

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. Unfortunately, Atrium Mortgage Investment's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.

Our Thoughts On Atrium Mortgage Investment's Dividend

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. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic 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 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 performing dividend stock.

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