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The board of Atrium Mortgage Investment Corporation (TSE:AI) has announced that it will pay a dividend of CA$0.075 per share on the 12th of August. This means the annual payment is 8.4% of the current stock price, which is above the average for the industry.
View our latest analysis for Atrium Mortgage Investment
Atrium Mortgage Investment Doesn't Earn Enough To Cover Its Payments
If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Atrium Mortgage Investment's dividend made up quite a large proportion of earnings but only 63% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.
The next 12 months is set to see EPS grow by 2.4%. If the dividend continues on its recent course, the payout ratio in 12 months could be 97%, which is a bit high and could start applying pressure to the balance sheet.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first 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 means that it has been growing its distributions at 1.6% per annum 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.
Atrium Mortgage Investment May Find It Hard To Grow The Dividend
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Atrium Mortgage Investment's EPS was effectively flat over the past five years, which could stop the company from paying more every year.
In Summary
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 company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.
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 1 warning sign for Atrium Mortgage Investment that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.