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The board of Terra Firma Capital Corporation (CVE:TII) has announced that it will pay a dividend on the 15th of October, with investors receiving CA$0.05 per share. Including this payment, the dividend yield on the stock will be 2.9%, which is a modest boost for shareholders' returns.
Terra Firma Capital's Payment Has Solid Earnings Coverage
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. However, Terra Firma Capital's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.
Looking forward, earnings per share could rise by 2.4% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 32%, which is in the range that makes us comfortable with the sustainability of the dividend.
Terra Firma Capital Is Still Building Its Track Record
The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. Since 2019, the dividend has gone from US$0.14 to US$0.16. This works out to be a compound annual growth rate (CAGR) of approximately 4.3% a year over that time. We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.
Terra Firma Capital May Find It Hard To Grow The Dividend
Investors could be attracted to the stock based on the quality of its payment history. Earnings has been rising at 2.4% per annum over the last five years, which admittedly is a bit slow. While EPS growth is quite low, Terra Firma Capital has the option to increase the payout ratio to return more cash to shareholders.
Our Thoughts On Terra Firma Capital's Dividend
Overall, we think Terra Firma Capital is a solid choice as a dividend stock, even though the dividend wasn't raised this year. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.
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. Taking the debate a bit further, we've identified 2 warning signs for Terra Firma Capital that investors need to be conscious of moving forward. We have also put together a list of global stocks with a solid dividend.
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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