Mercer International's (NASDAQ:MERC) Dividend Will Be $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 October. Based on this payment, the dividend yield will be 3.3%, which is fairly typical for the industry.

View our latest analysis for Mercer International

Mercer International's Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Despite not generating a profit, Mercer International is still paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.

Analysts expect a massive rise in earnings per share in the next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 9.0%, which makes us pretty comfortable with the sustainability of the dividend.

Mercer International's Dividend Has Lacked Consistency

It's comforting to see that Mercer International has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of $0.46 in 2015 to the most recent total annual payment of $0.30. Doing the maths, this is a decline of about 5.2% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Company Could Face Some Challenges Growing The Dividend

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. It's encouraging to see that Mercer International has been growing its earnings per share at 15% a year over the past five years. Unprofitable companies aren't normally our pick for a dividend stock, but we like the growth that we have been seeing. All is not lost, but the future of the dividend definitely rests upon the company's ability to become profitable soon.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Mercer International's payments, as there could be some issues with sustaining them into the future. Strong earnings growth means Mercer International has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic 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 Mercer International that investors should know about before committing capital to this stock. 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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