Firm Capital Mortgage Investment (TSE:FC) Will Pay A Dividend Of CA$0.078

The board of Firm Capital Mortgage Investment Corporation (TSE:FC) has announced that it will pay a dividend of CA$0.078 per share on the 15th of August. The dividend yield will be 8.2% based on this payment which is still above the industry average.

See our latest analysis for Firm Capital Mortgage Investment

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

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Firm Capital Mortgage Investment's dividend was higher than its profits, but the free cash flows quite comfortably covered it. 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.

If the company can't turn things around, EPS could fall by 3.1% over the next year. 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. Dividend payments have shrunk at a rate of less than 1% per annum over this time frame. A company that decreases its dividend over time generally isn't what we are looking for.

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. It's not great to see that Firm Capital Mortgage Investment's earnings per share has fallen at approximately 3.1% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

We'd also point out that Firm Capital Mortgage Investment has issued stock equal to 12% of shares outstanding. 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. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 4 warning signs for Firm Capital Mortgage Investment that investors should know about before committing capital to this stock. 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.