MCAN Mortgage's (TSE:MKP) Dividend Will Be CA$0.34

MCAN Mortgage Corporation (TSE:MKP) has announced that it will pay a dividend of CA$0.34 per share on the 4th of January. This means the annual payment is 7.2% of the current stock price, which is above the average for the industry.

See our latest analysis for MCAN Mortgage

MCAN Mortgage's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last dividend, MCAN Mortgage is earning enough to cover the payment, but the it makes up 367% 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 7.5% if recent trends continue. If the dividend continues on this path, the payout ratio could be 51% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2011, the dividend has gone from CA$1.19 to CA$1.36. This means that it has been growing its distributions at 1.3% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

We Could See MCAN Mortgage's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. MCAN Mortgage has impressed us by growing EPS at 7.5% per 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.

The company has also been raising capital by issuing stock equal to 12% of shares outstanding in the last 12 months. 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.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about MCAN Mortgage's payments, as there could be some issues with sustaining them into the future. While MCAN Mortgage is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

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. For instance, we've picked out 2 warning signs for MCAN Mortgage 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.

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.

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