Some market analysts say the elevated volatility you see today in the financial markets, especially the stock market, is the new normal. The spikes and dips in stock prices are common, but the headwinds are different or unlike any other. Last year was unprecedented for the magnitude of rate hikes by central banks to curb runaway inflation.
Fortunately, because the TSX is resilient, the path to reliable income and wealth building remains open. Investors can produce financial safety nets through dividend investing. Established companies continue to pay dividends, notwithstanding the challenging environment.
Timbercreek Financial (TSX: TF), for example, is outperforming the broader market year to date, up 6.63% versus 4.28%, respectively. At $7.14 per share, the financial stock pays a juicy 9.62% dividend. Since the payout frequency is monthly, you can turn a $15,000 investment into a financial safety net of $120.25 every month.
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Sticky inflation
Canada’s headline inflation peaked at 8.13% in June 2022, but it took nine rate hikes by the Bank of Canada to bring it down to 2.81% a year later. The central banker increased the rate by 0.25% in July 2023 (the tenth time) but paused in September 2023 and kept it at 5%.
However, another rate increase looms after inflation rose to 4% last month. The ongoing concern of the governing council is the lack of progress on underlying price pressures. Governor Tiff Macklem said, “Members agreed that data since their last decision had shown more clearly that demand was slowing, and excess demand was diminishing as monetary policy gained traction.”
Macklem adds it was much too early to be discussing rate cuts. Still, Canada’s housing market rebounded following the conditional pauses in March, April, and September 2023. The next rate could come on October 25, 2023, when the policymakers meet again.
Rising home prices
Canadian home prices are rapidly rising amid surging interest rates and borrowing costs. Data from the Teranet-National Bank House Price Index shows that housing prices across the country rose for the sixth consecutive month in August 2023. It was also the first time since March 2021 that home prices in 11 metropolitan areas recorded home price increases in August.
Analysts at the Royal Bank of Canada expect price gains to be moderate in the coming months when interest rates begin to impact affordability. Meanwhile, Timbercreek Financial is performing well in the current real estate and mortgage market.
Durable mortgage portfolio
The $595 million non-bank, commercial real estate lender provides shorter-duration (less than five years) structured financing solutions.
Timbercreek’s lending program is conservative and caters to commercial real estate clients. In Q2 2023, net income and comprehensive income rose 15% to $16.9 million versus Q2 2022. Management credits the strong interest income and healthy mortgage portfolio for the impressive results.
Its CEO, Blair Tamblyn, said, “The second quarter results showed significant year-over-year growth in our key financial measures, including a 22% increase in net investment income, 18% increase in earnings per share, and strong growth in distributable income.”
The mortgage portfolio has been durable for years due to the company’s focus on high-quality, income-producing assets. Dividend earners should have the confidence to invest in this high-yield dividend stock. Timbercreek Financial is a proven financial safety net. TF stock hasn’t missed a monthly payout since 2016.
