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Don't Race Out To Buy Firm Capital Mortgage Investment Corporation (TSE:FC) Just Because It's Going Ex-Dividend

Simply Wall St

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Firm Capital Mortgage Investment Corporation (TSE:FC) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 29th of August will not receive this dividend, which will be paid on the 16th of September.

Firm Capital Mortgage Investment's next dividend payment will be CA$0.078 per share, and in the last 12 months, the company paid a total of CA$0.99 per share. Looking at the last 12 months of distributions, Firm Capital Mortgage Investment has a trailing yield of approximately 7.1% on its current stock price of CA$13.83. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Firm Capital Mortgage Investment can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Firm Capital Mortgage Investment

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Firm Capital Mortgage Investment paid out 94% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances.

When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

TSX:FC Historical Dividend Yield, August 24th 2019

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that Firm Capital Mortgage Investment's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Firm Capital Mortgage Investment also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Firm Capital Mortgage Investment has seen its dividend decline 1.1% per annum on average over the past 10 years, which is not great to see.

The Bottom Line

Is Firm Capital Mortgage Investment worth buying for its dividend? While we're glad to see that its earnings aren't shrinking, we're not enamored of the fact that it's paying out 94% of last year's earnings. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

Curious what other investors think of Firm Capital Mortgage Investment? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.