Atrium Mortgage Investment Corporation (TSE:AI) has announced that it will pay a dividend of CA$0.075 per share on the 12th of October. Based on this payment, the dividend yield on the company's stock will be 8.2%, which is an attractive boost to shareholder returns.
Atrium Mortgage Investment Not Expected To 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.
Atrium Mortgage Investment has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Based on Atrium Mortgage Investment's last earnings report, the payout ratio is at a decent 91%, meaning that the company is able to pay out its dividend with a bit of room to spare.
Earnings per share is forecast to rise by 2.4% over the next year. If the dividend continues on its recent course, the future payout ratio in 12 months could be 97%, which is a bit high and could start applying pressure to the balance sheet.
The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was CA$0.83 in 2012, and the most recent fiscal year payment was CA$0.97. This works out to be a compound annual growth rate (CAGR) of approximately 1.6% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.
The Dividend's Growth Prospects Are Limited
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Atrium Mortgage Investment hasn't seen much change in its earnings per share over the last five years. Atrium Mortgage Investment's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.
Atrium Mortgage Investment's Dividend Doesn't Look Sustainable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Atrium Mortgage Investment's payments, as there could be some issues with sustaining them into the future. The payments are bit high to be considered sustainable, and the track record isn't the best. Overall, we don't think this company has the makings of a good income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 2 warning signs for Atrium Mortgage Investment that investors need to be conscious of moving forward. Is Atrium Mortgage Investment 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.
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