Monthly dividends: who wouldn’t want ’em? Everybody likes dividend income; the larger and more frequent, the better! Most dividend stocks pay their shareholders quarterly, so you have to wait a significant amount of time between each payout. However, not all dividend stocks are in that category. There are a few monthly pay dividend stocks out there that pay their shareholders once each calendar month. In this article, I will explore one monthly pay dividend stock whose payout is safe and well-covered.
First National Financial
First National Financial (TSX:FN) is a Canadian non-bank lender. A non-bank lender is a company that issues loans, just like banks do, but doesn’t take deposits. In many ways these companies really are similar to banks, despite the name. The difference is that, since they don’t have deposits, they finance their loans by other means, such as by issuing bonds. This makes non-bank lenders in principle less risky than banks, because they don’t have to worry about depositors withdrawing their money all at once. Bonds mature at predictable intervals, but they cannot be “withdrawn” or “called back” like deposits can.
Recent earnings
The wisdom of First National’s “no deposit” approach can be seen in the company’s most recent earnings release. In its most recent quarter, FN did:
- $142 billion in mortgages under administration, up 10%.
- $226 million in revenue, up 42%.
- $83 million in net income, up 108%.
- $95.5 million in pre-fair market value, up 90%.
- A 37% profit margin.
- A $2.45 annualized dividend, up 2%.
It was a pretty good showing. In a period when Canada’s big banks barely grew at all, FN grew its earnings by 108%. Additionally, the company’s payout ratio in the 12-month period was only 72%, indicating that management has room to raise it further should they wish to.
Monthly dividends from FN stock: They can really add up
As we’ve seen, FN stock pays $2.45 in annualized dividend income, or $0.204 per each monthly dividend paid. At today’s stock price of $38.20, that provides a yield of 6.41%. If you invest $100,000 at that yield, you get $6,410 back in annual tax-free passive income. That’s a pretty decent income supplement, and of course, FN’s dividend has been rising over time, so you could ultimately get more than $6,410 per year if you hold the stock long enough.
Performance and valuation
Having looked at First National’s recent earnings and dividend potential, we can now turn to its long-term performance.
In the last 12 months, FN did well in terms of profitability, with an 88% gross profit margin, and 38% net and free cash flow margins.
It did similarly well in terms of growth, with revenue up 2.45% and earnings up 26%.
Over the last five years, FN has grown its revenue by 9.5% CAGR, its net income by 6.9% CAGR, and its earnings per share by 6.93% CAGR.
On the whole, First National has performed quite well as a business over the last five years, and its stock has, unsurprisingly, followed suit.
