Terra Firma Capital (CVE:TII) Has Affirmed Its Dividend Of CA$0.06

The board of Terra Firma Capital Corporation (CVE:TII) has announced that it will pay a dividend on the 15th of April, with investors receiving CA$0.06 per share. This means the dividend yield will be fairly typical at 4.0%.

View our latest analysis for Terra Firma Capital

Terra Firma Capital's Earnings Easily Cover the Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Terra Firma Capital's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

If the trend of the last few years continues, EPS will grow by 5.7% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 41% by next year, which is in a pretty sustainable range.

Terra Firma Capital Doesn't Have A Long Payment History

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. The dividend has gone from US$0.14 in 2019 to the most recent annual payment of US$0.19. This implies that the company grew its distributions at a yearly rate of about 9.0% over that duration. Terra Firma Capital has been growing its dividend at a decent rate, and the payments have been stable. However, the payment history is very short, so there is no evidence yet that the dividend can be sustained over a full economic cycle.

The Dividend Has Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Terra Firma Capital has seen EPS rising for the last five years, at 5.7% per annum. Terra Firma Capital definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Terra Firma Capital's Dividend

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 the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Terra Firma Capital is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Terra Firma Capital that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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