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The board of Terra Firma Capital Corporation (CVE:TII) has announced that it will pay a dividend of CA$0.06 per share on the 15th of April. This means that the annual payment will be 4.0% of the current stock price, which is in line with the average for the industry.
Terra Firma Capital's Earnings Easily Cover the Distributions
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Terra Firma Capital is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
Over the next year, EPS could expand by 5.7% if recent trends continue. If the dividend continues on this path, the payout ratio could be 41% by next year, which we think can be pretty sustainable going forward.
Terra Firma Capital Doesn't Have A Long Payment History
Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. Since 2019, the dividend has gone from US$0.14 to US$0.19. This means that it has been growing its distributions at 9.0% per annum over that time. Terra Firma Capital has a nice track record of dividend growth but we would wait until we see a longer track record before getting too confident.
The Dividend Has Growth Potential
Investors could be attracted to the stock based on the quality of its payment history. Terra Firma Capital has impressed us by growing EPS at 5.7% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Terra Firma Capital's prospects of growing its dividend payments in the future.
Our Thoughts On Terra Firma Capital's Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 Terra Firma Capital that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.