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Mercer International Inc. (NASDAQ:MERC) will pay a dividend of $0.075 on the 28th of December. Including this payment, the dividend yield on the stock will be 3.1%, which is a modest boost for shareholders' returns.
Check out our latest analysis for Mercer International
Mercer International's Dividend Is Well Covered By Earnings
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Even though Mercer International is not generating a profit, it is still paying a dividend. The company is also yet to generate cash flow, so the dividend sustainability is definitely questionable.
Analysts expect a massive rise in earnings per share in the next year. If the dividend extends its recent trend, estimates say the dividend could reach 1.4%, which we would be comfortable to see continuing.
Mercer International's Dividend Has Lacked Consistency
Looking back, Mercer International's dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The annual payment during the last 8 years was $0.46 in 2015, and the most recent fiscal year payment was $0.30. This works out to be a decline of approximately 5.2% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
Mercer International Could Grow Its Dividend
With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. We are encouraged to see that Mercer International has grown earnings per share at 5.9% per year over the past five years. It's not an ideal situation that the company isn't turning a profit but the growth recently is a positive sign. All is not lost, but the future of the dividend definitely rests upon the company's ability to become profitable soon.
The Dividend Could Prove To Be Unreliable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The track record isn't great, and the payments are a bit high to be considered sustainable. We would probably look elsewhere for an income investment.
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. As an example, we've identified 2 warning signs for Mercer International that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.