Mercer International's (NASDAQ:MERC) Dividend Will Be $0.075

Mercer International Inc. (NASDAQ:MERC) will pay a dividend of $0.075 on the 28th of December. This payment means that the dividend yield will be 3.4%, which is around the industry average.

See our latest analysis for Mercer International

Mercer International's Earnings Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Even in the absence of profits, Mercer International is 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.

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 2.7%, 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. Since 2015, the annual payment back then was $0.46, compared to the most recent full-year payment of $0.30. The dividend has shrunk at around 5.2% 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.

We Could See Mercer International's Dividend Growing

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. Mercer International has impressed us by growing EPS at 5.9% per year over the past five years. It's not great that the company is not turning a profit, but the decent growth in recent years is certainly a positive sign. Assuming the company can post positive net income numbers soon, it could has the potential to be a decent dividend payer.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The payments are bit high to be considered sustainable, and the track record isn't the best. We don't think Mercer International 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Mercer International that investors should take into consideration. 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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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.