Firm Capital Mortgage Investment (TSE:FC) Has Announced A Dividend Of CA$0.078

The board of Firm Capital Mortgage Investment Corporation (TSE:FC) has announced that it will pay a dividend on the 15th of June, with investors receiving CA$0.078 per share. The dividend yield will be 7.2% based on this payment which is still above the industry average.

View our latest analysis for Firm Capital Mortgage Investment

Firm Capital Mortgage Investment Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Firm Capital Mortgage Investment's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

EPS is set to fall by 3.1% over the next 12 months if recent trends continue. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 110%, which is definitely a bit high to be sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from CA$0.99 in 2012 to the most recent annual payment of CA$0.95. Payments have been decreasing at a very slow pace in this time period. A company that decreases its dividend over time generally isn't what we are looking for.

Firm Capital Mortgage Investment May Find It Hard To Grow The Dividend

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. Over the past five years, it looks as though Firm Capital Mortgage Investment's EPS has declined at around 3.1% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

The company has also been raising capital by issuing stock equal to 12% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Firm Capital Mortgage Investment's payments, as there could be some issues with sustaining them into the future. 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.

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 3 warning signs for Firm Capital Mortgage Investment that you should be aware of before investing. 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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