One of the reasons I like Perpetual Dividend Raisers is they set high expectations for investors. Management knows that it needs to do whatever it can to meet those expectations.

On the other hand, once management crosses the line and cuts the dividend, it often does so again and again.

For this reason, serial dividend cutters can’t be trusted to sustain their dividends, even when cash flows are strong. And you never know if they’ll bail on the dividend as soon as things get difficult.

Compare that to a company like Procter & Gamble (NYSE: PG), which has raised its dividend every year for more than 50 years. During that half-century, the company certainly experienced tough times, yet it not only sustained the dividend, but also raised it.

An Uncertain Future

But mortgage real estate investment trust Two Harbors Investment Corp. (NYSE: TWO) is no Procter & Gamble. It’s quite the opposite, actually. Two Harbors’ management has consistently shown that it’s quick to reduce the dividend.

The company borrows money in the short term and lends it in the long term at higher rates. The difference between the two is net interest income, an important measure of a mortgage REIT’s cash flow.

Two Harbors’ recent NII has been fine. Its first quarter NII of $89.4 million covered the $80.3 million it paid in dividends. And last year, the company also easily covered its $381.6 million in dividends with $459.8 million in NII.

In 2016, Wall Street projects the company will earn $404.6 million in NII and pay out just $325.6 million in dividends.

This year’s lower expected payout is the result of an 11.5% dividend cut in March. And dividend cuts are something Two Harbors shareholders should have gotten used to by now.

The company has slashed its payout five times since 2012. The dividend now sits 38% lower than where it was just four years ago.

Clearly, the company’s management isn’t committed to the dividend.

Even though Two Harbors should earn enough to pay the dividend in 2016, shareholders shouldn’t be surprised by another dividend cut within the next 12 to 24 months.

Dividend Safety Rating: C

If you have a stock whose dividend safety you’d like me to analyze, leave the ticker symbol in the comments section below.

Good investing,

Marc