Mercer International Inc.'s (NASDAQ:MERC) investors are due to receive a payment of $0.075 per share on 28th of December. This means that the annual payment will be 3.6% of the current stock price, which is in line with the average for the industry.

Check out our latest analysis for Mercer International

Mercer International's Earnings Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. 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.

According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 2.7%, so there isn't too much pressure on the dividend.

Mercer International's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 8 years was $0.46 in 2015, and the most recent fiscal year payment was $0.30. Doing the maths, this is a decline of about 5.2% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

We Could See Mercer International's Dividend Growing

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. It's encouraging to see that Mercer International has been growing its earnings per share at 5.9% a year over the past five years. Unprofitable companies aren't normally our pick for a dividend stock, but we like the growth that we have been seeing. All is not lost, but the future of the dividend definitely rests upon the company's ability to become profitable soon.

Mercer International's Dividend Doesn't Look Sustainable

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. 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. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for Mercer International that investors should take into consideration. Is Mercer International not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.