Big Banks Hike Payouts, but 2 Non-Bank Lenders Pay Higher Dividends

Big Banks raised their dividends, but investors can earn more from two non-bank lenders that offer much higher yields.

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Canada’s Big Six banks announced dividend increases of at least 10% when they presented their Q4 and fiscal 2021 results in late November and early December 2021. The dividend bonanza was welcome news to investors looking to earn passive income in 2022.

The Bank of Nova Scotia and Canadian Imperial Bank of Commerce would still have the highest yields among the banking industry giants. However, if you want to soak up on dividends and receive higher cash flow streams, two non-bank lenders offer fantastic dividends.

Timbercreek Financial (TSX:TF) pays a generous 7.2% dividend, while and MCAN Mortgage Corporation (TSX:MKP) offers 7.68%. Furthermore, the share prices are under $20. A combined investment of $10,000 will produce higher dividends than investing $15,000 in BNS or CIBC.  

Ultra-conservative lending

Timbercreek Financial continues to demonstrate stability and durability amid the challenging pandemic environment. Its CEO Blair Tamblyn said it’s the hallmark of the company’s investment style. This $781.23 million non-bank lender focuses on providing or extending shorter-duration, structured financing solutions to commercial real estate professionals.

The lending approach is sophisticated, if not unique. Borrowers patronize this service-oriented lender because of faster execution and more flexible terms than the Big Banks and other financial institutions. Besides the loan tenors of less than five years, the loan-to-value ratio is conservative. Also, it lends primarily against income-producing commercial real estate.

In the nine months ended September 30, 2021, the bottom line grew 15.7% to $38.89 million versus the same period in 2020. At the end of Q3 2021, Timbercreek had a conservative portfolio risk position. The weighted average loan-to-value was 69.6% and 90.2% of the mortgage investment portfolio are first mortgages. Notably, 87.1% of the latter are in cash-flowing properties.

Tamblyn said, “Looking ahead, we have an expanded capital base and the financial flexibility to achieve steady growth of the total portfolio.” Timbercreek trades at only $9.49 per share.

Ultra-conservative lending

Like banks and insurance companies, MCAN Mortgage Corporation is a federally regulated loan company. Management must abide by the guidelines and regulations of the Office of the Superintendent of Financial Institutions (OSFI). Also, as a mortgage investment corporation (MIC), the $489.34 million loan company falls under Canada’s Income Tax Act.

MCAN generates reliable income streams by investing in a diversified portfolio of mortgages. The portfolio consists of single-family residential, residential construction, non-residential construction, and commercial loans. XMC Mortgage Corporation, a wholly-owned subsidiary, originates single-family residential mortgage products.

In Q3 2021, MCAN’s net income fell to $13 million versus Q3 2020. Management said the decrease in equity income (mortgage origination and processing fees) was why earnings dropped 42.7% year-over-year. Nevertheless, it’s still a good year overall.

MCAN’s year-to-date (nine months ended September 30, 2021) net income of $48.3 million was 132% higher than the same period in 2020. The loan company won the Canadian Mortgage Professional’s 5-star Mortgage Products Award in the Alternative Lending Category.

Since MCAN is an MIC, it can deduct dividend payouts to shareholders from its taxable income. The current share price is $17.35 if you invest today. 

Excellent second-liners

Timbercreek Financial and MCAN are excellent second-liners if your core holdings are Big Bank stocks.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends BANK OF NOVA SCOTIA.

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