MCAN Mortgage (TSE:MKP) Will Pay A Dividend Of CA$0.34

MCAN Mortgage Corporation (TSE:MKP) has announced that it will pay a dividend of CA$0.34 per share on the 30th of September. This means the annual payment is 7.7% of the current stock price, which is above the average for the industry.

View our latest analysis for MCAN Mortgage

MCAN Mortgage's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last dividend, MCAN Mortgage is earning enough to cover the payment, but the it makes up 274% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS could expand by 13.8% if recent trends continue. If the dividend continues on this path, the payout ratio could be 39% by next year, which we think can be pretty 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$1.19 in 2011 to the most recent annual payment of CA$1.36. This means that it has been growing its distributions at 1.3% per annum over that time. 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.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see MCAN Mortgage has been growing its earnings per share at 14% a year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

We'd also point out that MCAN Mortgage 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.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While MCAN Mortgage is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 3 warning signs for MCAN Mortgage that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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