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Read This Before Considering Granite Point Mortgage Trust Inc. (NYSE:GPMT) For Its Upcoming 2.2% Dividend

Simply Wall St

Readers hoping to buy Granite Point Mortgage Trust Inc. (NYSE:GPMT) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 2nd of October in order to be eligible for this dividend, which will be paid on the 18th of October.

Granite Point Mortgage Trust's next dividend payment will be US$0.4 per share. Last year, in total, the company distributed US$1.7 to shareholders. Based on the last year's worth of payments, Granite Point Mortgage Trust stock has a trailing yield of around 8.9% on the current share price of $18.83. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Granite Point Mortgage Trust has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Granite Point Mortgage Trust

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. Granite Point Mortgage Trust paid out 117% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance.

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.

NYSE:GPMT Historical Dividend Yield, September 27th 2019

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, it's good to see earnings have grown 13% on last year.

One year is not very long in the grand scheme of things though, so we wouldn't draw too strong a conclusion based on these results.

We'd also point out that Granite Point Mortgage Trust issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past two years, Granite Point Mortgage Trust has increased its dividend at approximately 15% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

From a dividend perspective, should investors buy or avoid Granite Point Mortgage Trust? We're not enthused to see Granite Point Mortgage Trust's dividend was not well covered by earnings over the last year, although it is great to see earnings growing. We're unconvinced on the company's merits, and think there might be better opportunities out there.

Wondering what the future holds for Granite Point Mortgage Trust? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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.