Did you know that there are monthly pay dividend stocks with yields up to 6.5%?
It’s true, and not all of them are pipelines or utilities, either!
In Canada, high yield monthly pay stocks are usually found in the energy infrastructure and/or utilities sectors. These companies are able to offer steady dividends because their revenue comes from long-term contracts. For this reason, they can easily pay dividends on a monthly schedule.
Most other sectors pay their dividends quarterly, for several reasons, a main one being that their revenue is more unpredictable. A bank, for example, may see revenue abruptly drop after a major client goes bankrupt. That’s not to say there are no monthly pay dividend stocks in the financial sector, though. In this article, I will explore one such stock sporting a juicy 6.5% yield at today’s prices.
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First National
First National Financial (TSX: FN) is a Canadian non-bank lender with a 6.4% dividend yield. It pays a $0.20 dividend each month, summing to $2.40 per year, which in turn gives us the 6.4% yield.
How does First National earn all that profit that it passes on to shareholders?
It’s pretty simple. As a non-bank lender, it lends out money in the form of mortgages. It finds clients by partnering with mortgage brokers, who send leads its way. It finances its loans by issuing bonds or even borrowing money from banks. In this way, the financial services company’s business model is very different from that of a bank. It does not take deposits. Its financing is similar to its loans in terms of time to maturity. So, it does not need to worry about depositors walking in and withdrawing their money all at once. This is an important advantage because, as we saw in the spring of this year, deposit flight can sometimes become a major issue for banks. In March and April, several U.S. banks failed when their depositors fled and they didn’t have enough liquidity to pay them all off. First National, as a non-bank lender, is not exposed to such risks. So, it is arguably safer than the average bank is.
Recent earnings results
We can see the wisdom of First National’s business strategy by looking at its recent earnings results. In the most recent quarter, it delivered:
- $138 billion in mortgages under administration, up 8%.
- $526 million in revenue, up 26%.
- $121 million in pre-tax income, up 46%.
- $89.5 million in pre-FMV income (this means income without including fair value adjustments).
On the whole, it was a strong quarter, well ahead of what analysts expected, and with very good growth.
Why the stock is falling
Having seen that First National is putting out strong earnings, it’s time to ask the most important question:
Why is its stock falling?
FN stock peaked at $52.37 back in 2021; it’s all the way down to $37.81 now – a 26% decline. Why has the stock experienced such a severe decline?
It has to do with issues in the banking sector. Although First National itself is doing very well this year, many other lenders are doing poorly. A few in the U.S. have even collapsed! Stocks tend to correlate with other stocks in the same sector, and FN is no exception. It’s being dragged down with its peer companies, which are seen as risky. So, its stock is arguably being unfairly beaten down. It may well be a good buy today.
