Timbercreek Financial (TSE:TF) Is Paying Out A Dividend Of CA$0.0575

Timbercreek Financial Corp. (TSE:TF) will pay a dividend of CA$0.0575 on the 15th of May. The dividend yield will be 9.0% based on this payment which is still above the industry average.

View our latest analysis for Timbercreek Financial

Timbercreek Financial 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 this announcement, Timbercreek Financial was paying out 87% of earnings, but a comparatively small 64% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Over the next year, EPS is forecast to fall by 14.3%. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 112%, which could put the dividend under pressure if earnings don't start to improve.

Timbercreek Financial Doesn't Have A Long Payment History

The dividend's track record has been pretty solid, but with only 8 years of history we want to see a few more years of history before making any solid conclusions. Since 2016, the dividend has gone from CA$0.684 total annually to CA$0.69. Its dividends have grown at less than 1% per annum over this time frame. We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. However, Timbercreek Financial has only grown its earnings per share at 3.7% per annum over the past five years. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

Our Thoughts On Timbercreek Financial's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Timbercreek Financial's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Case in point: We've spotted 3 warning signs for Timbercreek Financial (of which 2 are potentially serious!) you should know about. Is Timbercreek Financial not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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