MCAN Mortgage's (TSE:MKP) Upcoming Dividend Will Be Larger Than Last Year's

MCAN Mortgage Corporation (TSE:MKP) has announced that it will be increasing its dividend on the 31st of March to CA$1.33, which will be 291% higher than last year. This takes the dividend yield from 7.2% to 12%, which shareholders will be pleased with.

View our latest analysis for MCAN Mortgage

MCAN Mortgage Doesn't Earn Enough To Cover Its Payments

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 394% 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 5.9% if the company continues along the path it has been on recently. If the dividend continues on its recent course, the payout ratio in 12 months could be 97%, which is a bit high and could start applying pressure to the balance sheet.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the first annual payment was CA$1.81, compared to the most recent full-year payment of CA$1.36. The dividend has shrunk at around 2.8% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. MCAN Mortgage has seen EPS rising for the last five years, at 5.9% per annum. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

We'd also point out that MCAN Mortgage has issued stock equal to 20% 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, we always like to see the dividend being raised, but we don't think MCAN Mortgage will make a great income stock. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for MCAN Mortgage that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.