New Residential Investment Corp. (NYSE: NRZ) used to be a favorite with dividend investors. As of December, it paid a whopping 12.4% yield and its short track record of paying dividends was solid. It had raised the dividend five times since 2013.

Then, the pandemic occurred. Shares of the mortgage real estate investment trust (REIT) fell from a high of $17.66 to a low of $2.91. Today, it trades around $8, less than half of where it was in February.

Perhaps even more upsetting to income investors is that management slashed the quarterly dividend by 90% to $0.05 from $0.50. In the two quarters since, it has raised the payout by $0.05 per share each quarter, so the dividend now stands at $0.15, which equals a 7.1% yield.

Can investors bank on continuing to receive $0.15 per share each quarter?

Mortgage REITs make money by borrowing money at lower short-term rates and lending it out at higher longer-term rates. The difference, minus expenses, is known as net interest income (NII), and that is what we use to determine a mortgage REIT’s ability to pay its dividend.

Even before the pandemic, New Residential Investment’s NII was headed in the wrong direction…

Last year’s NII was less than half of what it was in 2017. This year, NII is expected to rebound, but it is still more than 20% lower than 2018’s total and 35% below 2017’s total.

SafetyNet Pro does not look kindly upon declining cash flow or NII.

That disastrous NII figure from last year means that New Residential Investment could not afford its dividend. It paid out $808 million in dividends while generating only $579 million in NII.

So even if the pandemic hadn’t occurred, New Residential might have been forced to cut the dividend anyway – especially because this year’s NII, while forecast to be better than last year’s, is still expected to be below $800 million and wouldn’t cover the dividend if the total paid remained the same.

Due to the drastic reduction of the dividend, New Residential is now projected to pay out just $204 million, giving the company plenty of room in case NII comes in below expectations.

But with New Residential’s declining NII and recent dividend cut, SafetyNet Pro says this is a dividend that can’t be trusted. It will take a few years of increasing NII, low payout ratios and a stable dividend to restore confidence that the dividend, at whatever level, is safe.

Dividend Safety Rating: F