Mercer International (NASDAQ:MERC) Is Due To Pay A Dividend Of $0.075

The board of Mercer International Inc. (NASDAQ:MERC) has announced that it will pay a dividend of $0.075 per share on the 4th of April. This means the dividend yield will be fairly typical at 3.5%.

Check out our latest analysis for Mercer International

Mercer International's Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Despite not generating a profit, Mercer International is still paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.

Looking forward, earnings per share is forecast to rise exponentially over the next year. If the dividend extends its recent trend, estimates say the dividend could reach 0.8%, which we would be comfortable to see continuing.

Mercer International's Dividend Has Lacked Consistency

Mercer International has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2015, the dividend has gone from $0.46 total annually to $0.30. This works out to be a decline of approximately 4.6% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Is Doubtful

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Over the past five years, it looks as though Mercer International's EPS has declined at around 5.4% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Mercer International's Dividend Doesn't Look Great

Overall, this isn't a great candidate as an income investment, even though the dividend was stable this year. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 3 warning signs for Mercer International that investors need to be conscious of moving forward. Is Mercer International not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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