Firm Capital Mortgage Investment (TSE:FC) Has Re-Affirmed Its Dividend Of CA$0.078

By
Simply Wall St
Published
May 12, 2022
TSX:FC
Source: Shutterstock

Firm Capital Mortgage Investment Corporation's (TSE:FC) investors are due to receive a payment of CA$0.078 per share on 15th of June. Based on this payment, the dividend yield on the company's stock will be 7.4%, which is an attractive boost to shareholder returns.

View our latest analysis for Firm Capital Mortgage Investment

Firm Capital Mortgage Investment Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the company was paying out 99% of what it was earning and 79% of cash flows. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.

EPS is set to fall by 3.5% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 113%, which could put the dividend under pressure if earnings don't start to improve.

historic-dividend
TSX:FC Historic Dividend May 12th 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 first annual payment was CA$1.01, compared to the most recent full-year payment of CA$0.95. The dividend has shrunk at a rate of less than 1% a year over this period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

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

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that Firm Capital Mortgage Investment's earnings per share has fallen at approximately 3.5% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

We'd also point out that Firm Capital Mortgage Investment has issued stock equal to 12% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

Firm Capital Mortgage Investment's Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The track record isn't great, and the payments are a bit high to be considered sustainable. 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. Taking the debate a bit further, we've identified 3 warning signs for Firm Capital Mortgage Investment that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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