Dividend investing is a smart savings strategy for future or prospective retirees. Besides boosting regular income, you can reinvest dividend earnings to accumulate more shares for faster principal compounding. But a modest dividend payout isn’t a consideration for people eyeing early retirement.
Two TSX stocks are cheap relative to usual options like big banks and large-cap energy stocks. Barring any catastrophic market downturns, Firm Capital Mortgage Investment Corporation (TSX:FC) and Diversified Royalty (TSX:DIV) could help you retire early, because of their ultra-high yields. The combined share price is less than $15, while the average dividend yield is a juicy 8.165%.
Conservative operating strategy
Firm Capital provides residential and commercial real estate financing and invests in niche markets that lack competition and are under-serviced by large financial institutions or lenders. The primary objective of this $395.55 million non-bank lender is to provide shareholders with a stable stream of monthly dividends from the company’s investments.
The investment portfolio is widely diversified across many industries and predominantly first mortgages (83%). Because the loan tenors are generally short term (68% maturing on or before December 31, 2023), Firm Capital can continually revolve the portfolio and adapt to changes in the real estate market. Also, renewals are offered to borrowers only when appropriate.
For the full-year 2022, revenues and net income rose 25.5% and 7.5% year over year to $60.1 million and $32.2 million. Management attributes the increases to higher interest income due to a larger average investment portfolio size.
In the current high interest rate environment, Firm Capital assists clients to overcome higher-rate issues by providing gap financing solutions. The company extends bridge financing pending take-outs by Canada Mortgage & Housing Corporation (CMHC) and other institutions. Sometimes the help can be through partnership equity.
Firm Capital mitigates loan loss risk by focusing on mortgage lending areas known to withstand market corrections. Most of the real estate assets in these areas retain their underlying real estate asset value. Performance-wise, the financial stock is up 9.48% year to date, and at $11.47 per share, the dividend offer is 8.14%.
Strong recovery from the pandemic
Diversified Royalty will not hurt your wallet but fatten it with a significant yield. At only $3.02 per share (+3.97% year to date), you can enjoy the 8.19% dividend offer. There were no wild price swings in the last 12 months, so don’t expect much on capital appreciation.
This $427.76 million multi-royalty corporation did better post-2020, the bear market in 2022, and to start 2023. Diversified owns the trademarks and collects royalties from seven companies in the royalty pool. Mr. Lube, AIR MILES, Sutton, Mr. Mikes, Nurse Next Door, Oxford Learning Centres, and Stratus Building Solutions provide the royalty streams.
In 2022, the consolidated royalty income and cash flow from operating activities increased by 21.3% and 2.02% to $44.6 million and $28.3 million versus 2021. Diversified’s president and chief executive officer Sean Morrison expects record adjusted revenues in the first quarter of 2023 because of the strong performances of most of the royalty partners.
The special bonus from Firm Capital and Diversified Royalty is the monthly dividend payout, not quarterly. Moreover, eligible shareholders reinvest some or all cash dividends through their dividend-reinvestment plans. However, make sure you understand the inherent risks to the businesses before investing.