1 Dirt-Cheap Dividend Stock for $5,000 in Annual Income

Canadians can generate $5,000 in annual income with the help of a dirt-cheap dividend stock like Timbercreek Financial Corp. (TSX:TF).

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The S&P/TSX Composite Index shed 93 points on Tuesday, August 22. Canadian stocks have hit a rough patch since passing through the midway point in August. However, this also presents opportunities for savvy investors. Today, I want to zero in on a top dividend stock that looks deeply undervalued at the time of this writing. Timbercreek Financial (TSX:TF) is dirt-cheap and allows us to churn out thousands in annual income. Let’s get into it.

Here’s how this dividend stock has performed in 2023

Shares of this dividend stock have dropped 5.5% month over month as of close on Tuesday, August 22. That has pushed shares of Timbercreek Financial into negative territory so far in 2023. Meanwhile, the dividend stock has plunged 14% in the year-over-year period. Investors can track Timbercreek’s past performance with the interactive price chart below.

Should investors feel good about Timbercreek’s prospects?

Timbercreek is a Toronto-based mortgage investment company that provides shorter-duration structured financing solutions to commercial real estate investors in Canada. This company released its second-quarter (Q2) fiscal 2023 earnings on August 2. Net investment income increased 22% year over year to $31.5 million in Q2. Meanwhile, net income and comprehensive income was reported at $16.9 million, or $0.20 per share — up from $14.7 million or $0.17 per share in the previous year.

The company’s Q2 earnings were bolstered by strong interest income as the Bank of Canada’s rate-tightening push has improved profit margins for many top lenders. Timbercreek reported net new mortgage advances of $64.7 million and advances on existing mortgages of $43.3 million. However, this was offset by net mortgage repayments of $128 million and net syndications of $5.3 million.

Real estate activity has also picked up more than expected in the spring and summer season. The market has bounced back nicely, considering the current interest rate environment. Timbercreek reported net mortgage investments of $1.12 billion in Q2 2023 — down from $1.23 billion in the previous year.

Timbercreek has maintained its focus on income-producing real estate in its portfolio, which should pique the interest of investors who are hungry for dividends. Its portfolio boasts a 68.3% weighted average loan-to-value ratio. Meanwhile, 87.7% of its mortgage investment portfolio is invested in cash-flowing properties. This is a dividend stock you want to target if you are on the hunt for big income in 2023 and beyond.

Why I’m targeting this cheap dividend stock for income right now

Shares of this dividend stock currently possess a price-to-earnings ratio of 9.6. That puts Timbercreek Financial in favourable value territory at the time of this writing.

This dividend stock last paid out a monthly distribution of $0.058 per share. That represents a superb 9.6% yield. For our hypothetical investment, I’d suggest stashing shares in a Tax-Free Savings Account (TFSA). That way, all the dividend income you generate with Timbercreek will go to your pocket.

Conclusion

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
TF$7.167,200$0.058$417.60Monthly

Timbercreek Financial stock closed at $7.16 per share on Tuesday, August 22. For our hypothetical, I’d look to snatch up 7,200 shares of this dividend stock for a purchase price of $51,552. This investment will allow us to generate monthly passive income of $417.60 in our TFSA. That works out to annual tax-free income of $5,011.20.

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 Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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