Canadian Big Banks continue to weather massive headwinds despite the heightened credit strain and higher loan-loss provisions. Only one of six in the distinguished group missed revenue expectations in Q1 fiscal 2024.
However, if you want to invest in the financial services sector this March, a non-bank lender providing residential and commercial mortgages is a better choice.
Besides the impressive financial results in Q4 and full year 2023, First National Financial Corporation (TSX:FN) pays a hefty 6.74% dividend. Moreover, at less than $50 per share ($35.88) and a monthly payout frequency, your investment transforms into monthly passive income streams.
Successful year
“First National had a very successful year in 2023,” said its president and CEO, Jason Ellis. “Despite challenging market conditions brought on by the cumulative effect of higher interest rates, total originations, including renewals, came close to equaling our previous record set in 2022.”
The $2.2 billion non-bank originator underwrites residential and commercial mortgages and capitalizes on relationships with independent mortgage professionals to grow its portfolio and generate income and cash flows. First National also boasts a purpose-built technology. Its MERLIN underwriting system provides mortgage brokers access to information anywhere and anytime.
In 2023, revenue and net income climbed 25% and 28% year over year to $2 billion and $252.8 million, respectively. Notably, the record $143.5 billion mortgages under administration (MUA) at year-end represented 10% growth from a year ago. In the fourth quarter, the top and bottom line increased 21% and 4% respectively to $503.4 million and $44.2 million compared to Q4 2022.
Ellis adds that because of strong customer demand for high-quality insured multi-unit mortgage products, the company’s annual commercial business volume reached over $13 billion, the best ever.
Alleviating the housing supply shortage
On March 11, 2024, First National’s commercial MUA surpassed $50 billion. Management credits the substantial growth in financing multi-unit properties across Canada for this latest milestone. Its senior executive vice president, Moray Tawse, said, “It has taken a substantial effort to reach this milestone.” The company topped the $5 billion mark two decades ago.
“Canada has an urgent need for new housing units, and we are proud to be part of the solution as a CMHC-approved lender and a go-to source for the country’s most experienced and prolific builders and developers,” adds Tawse. For his part, Ellis said achieving the $50 billion level validates First National’s non-bank business model.
First National originates and underwrites in all sectors of commercial mortgage lending markets, including industrial and retail assets. However, its commercial segment MUA leans more towards multi-unit residential properties. The company offers term and construction financing on housing and market rental units, seniors housing, and student housing.
But for 2024, First National expects lower single-family mortgage origination, similar to the market slowdown in the same period last year.
More than a dividend play
First National Financial Corporation is a pure mortgage lender but is more than a high-yield dividend stock. The financial stock is a dividend aristocrat owing to 11 consecutive years of dividend increases. Your bonus is the monthly passive income.
