Investors are bewildered by the TSX’s resiliency this year following the forgettable loss in 2022. However, market experts have opposing predictions on how the index will perform in the coming months until year-end. Several headwinds could destabilize the market, including a potential recession and more interest rate hikes.
Recession forecasts
The quarterly Real Economy Canada report by consulting company RSM said there’s a strong possibility of a brief but mild recession in 2023. National Bank of Canada’s chief economist, Stefan Marion, said a recession is more likely to materialize in 2024.
Jason Del Vicario, a portfolio manager at Hillside Wealth Management, is sure that volatility will increase. Nonetheless, he advises investors to stay the course despite the unknown. He adds, “The best move is to stay invested in the markets for the long run.”
The Bank of Canada resumed its rate hike campaign on June 7, 2023, raising its policy rate by 25 basis points to 4.75%. Governor Tim Macklem and the policymakers said, “Monetary policy was not sufficiently restrictive to bring supply and demand into balance and return inflation sustainably to the 2% target.”
Coping with inflation
In the prevailing environment, Canadian investors are rushing toward high-yield dividend stocks to cope with inflation. Timbercreek Financial (TSX: TF) is displaying financial stability and dividend sustainability thus far in 2023. At only $7.42 per share (+8.3% year to date), you can partake in the juicy 9.24% dividend.
I reviewed the dividend history and found that Timbercreek hasn’t missed a monthly dividend payment since 2016 nor reduced the payout. If you purchase 1,752 shares today, your $12,999.84 investment will generate $100.10 in monthly passive income. The dividend yield exceeds Canada’s 4.4% inflation rate (April 2023).
Successful risk management strategy
Timbercreek is an alternative option to established banks and financial institutions and captures the underserviced borrower market. Its flexible terms and faster loan processing attract commercial real estate investors seeking bridge financing solutions.
The $622.6 million non-bank commercial lender is ultra-conservative and lends only against income-producing real estate. Management said the shorter-duration structured financing solutions (less than five years) reduce loan defaults as they ensure that property owners have the income to service the loan.
Timbercreek’s diversified portfolio of structured mortgage loans is secured income-producing commercial real estate (92% are first mortgages). Besides preserving investor capital, it provides strong inflation-protected shareholder returns.
The property portfolio comprises multi-residential (58% of the total), office, and retail buildings. Timbercreek’s focus on cash-flowing properties (89%) is an important risk management strategy. It also utilizes an extensive network of real estate professionals in Canada, the U.S., and Europe to help manage debt investments throughout the loan term.
Record net income
The net income and comprehensive net income in Q1 2023 reached a record $18.1 million, representing a 31.2% jump from Q1 2022. Management credits the impressive quarterly results to strong interest income and a healthy mortgage portfolio.
Timbercreek’s CEO, Blair Tamblyn, said, “Generally, the portfolio performed well in the first quarter, reflecting the ongoing focus on high-quality, income-producing assets in urban markets.” Notably, the higher top-line income was mainly due to floating interest rates (88% of the portfolio). Meanwhile, Timbercreek expects higher transaction activities once a more normalized rate scenario returns.
