Timbercreek Financial Corp. (TSE:TF) has announced that it will pay a dividend of CA$0.0575 per share on the 15th of August. Based on this payment, the dividend yield on the company's stock will be 8.3%, which is an attractive boost to shareholder returns.
Timbercreek Financial Not Expected To Earn Enough To Cover Its Payments
If the payments aren't sustainable, a high yield for a few years won't matter that much.
Timbercreek Financial has a good history of paying out dividends, with its current track record at 6 years. Despite this history however, Timbercreek Financial's latest earnings report actually shows that the company didn't have enough earnings to cover its dividends, paying out more than it earned. This is worrying for investors of Timbercreek Financial, as it points towards the dividends being unsustainable in the long term.
Over the next year, EPS is forecast to expand by 17.0%. Assuming the dividend continues along recent trends, we think the future payout ratio could reach 126%, which probably can't continue putting some pressure on the balance sheet.
Timbercreek Financial Is Still Building Its Track Record
The dividend's track record has been pretty solid, but with only 6 years of history we want to see a few more years of history before making any solid conclusions. Since 2016, the annual payment back then was CA$0.684, compared to the most recent full-year payment of CA$0.69. Dividend payments have grown at less than 1% a year over this period. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.
Dividend Growth May Be Hard To Come By
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. In the last five years, Timbercreek Financial's earnings per share has shrunk at approximately 9.9% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.
Timbercreek Financial's Dividend Doesn't Look Great
In summary, while it is good to see that the dividend hasn't been cut, we think that at current levels the payment isn't particularly sustainable. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. We don't think that this is a great candidate to be an income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Timbercreek Financial that you should be aware of before investing. Is Timbercreek Financial not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here