Are you looking for a high-yield dividend stock that pays cash every month?
Unfortunately, they’re not easy to find. Most dividend stocks — including high-yield stocks — pay quarterly. A handful of dividend stocks pay monthly, but they don’t all have high yields, and they certainly aren’t all of high quality. Fortunately, there is a small handful of high-quality, monthly-paying dividend stocks out there that might meet your needs. In this article, I will explore one of them in detail.
First National Financial (TSX:FN) is a Canadian non-bank lender that issues mortgages. Like a bank, it borrows money to finance mortgages. Unlike banks, FN’s debts are not “deposits” that people can withdraw at an ATM machine in seconds but loans with defined terms to maturity. This means that FN faces much less liquidity risk than a typical bank does.
The way First National operates is surprisingly simple. It works with mortgage brokers to find people who need mortgages. Once it finds a prospect who seems credit worthy, it offers him or her a loan that meets their needs. It has grown its mortgages under administration to $138 billion using this approach.
A high yield
FN stock has a very high yield. The yield is 6.4% per year, or 0.53% per month. The specific dollar amount is $0.20 per share per month, or $2.40 per share per year. That divided by the current share price of $37.47 yields 6.4%. The yield is high enough already, and it could grow over time. Over the last five years, FN’s dividend has grown by 5.4% per year on a compound annual growth rate (CAGR) basis. It has raised its dividend payout every year for the last 11 years. It’s not a bad track record for a company that most Canadians haven’t even heard of. And the dividend growth could continue, as I’ll show in the next section.
The main reason why FN’s dividend could continue growing is because its earnings are growing right alongside the dividend. In the most recent quarter, FN delivered the following financial results:
- $138 billion in mortgages under administration, up 8%
- $11.1 billion in new and renewed mortgages
- $525.9 million in revenue, up 26%
- $89.2 million in net income, up 45.5%
- $1.47 in diluted earnings per share (EPS), up 45.5%
- A 41% payout ratio
Overall, it was a strong quarter, proving that FN is taking advantage of the high interest rates that prevail in today’s market. Should the Bank of Canada resume its interest rate hikes, or even just pause them, FN should continue doing well.
All things considered, First National Financial is a pretty good monthly pay dividend stock. The yield is high, the payout is frequent, and the payout ratio is fairly low. On top of that, the company is growing very quickly and has a 17% profit margin. Really, this stock ticks all the boxes as far as financials are concerned. The only thing you’ll want to watch out for is leverage. In order to fund all of its loans, FHN itself has to borrow money. That’s a risk factor all financials face, but in this case, it looks like a risk worth taking.
Before you consider First National Financial Corporation, you’ll want to hear this.
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* Returns as of 8/16/23
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