Are you looking for quality dividend stocks that pay monthly?
They aren’t easy to find, but they do exist.
In general, it’s not a good idea to have “monthly payments” as a criterion for picking stocks. The payment schedule isn’t all that relevant to long-term returns. Also, if you own a diversified portfolio of quarterly-paying dividend stocks, you will most likely be receiving dividends more frequently than once per quarter, as not all stocks have the same payment schedule.
Nevertheless, if you do want to add a monthly pay stock to your portfolio, read on, because I will reveal one quality TSX financial that yields 6.5% and pays monthly.
First National
First National Financial (TSX:FN) is a Canadian dividend stock that pays every single month. Its monthly dividend is $0.204167, which annualizes to $2.45. FN stock currently trades for $37.52, which results in a 6.52% dividend yield.
FN is a non-bank mortgage lender. It partners with mortgage brokers to find Canadians who want to shop around for mortgages. There is a sizable contingent of Canadians who shop around for mortgages, as not everybody is happy with the first mortgage quote they get from their bank. First National issues mortgages to such Canadians. It finances its loans with bonds rather than deposits. Instead of giving people checking and saving accounts, it simply issues bonds that provide money for writing new mortgages. This means that FN does not face the risk of “deposit flight,” which is always a concern for banks.
FN is doing well with its alternative lending business. In its most recent quarter, it delivered the following:
- $503 million in revenue, up 21.3%
- $59.9 million in income before taxes, up 2.8%
- $77 million in pre-FMV (fair market value) income, up 29
- $143 billion in mortgages under administration, up 9.2%
- $0.72 in earnings per share (EPS), up 2.85%
Why it pays monthly
Companies can choose to opt for any dividend schedule they like. Most pay quarterly, but some pay monthly or annually. FN might have chosen to go with a monthly payment schedule because it thinks it can attract a certain type of investor that way. The payment schedule is not intrinsically linked to the company’s operations.
Will it keep rising in the markets?
As we’ve seen, First National stock pays high dividends, is growing its earnings, and has a monthly payment schedule. It certainly looks like a compelling package for income-hungry investors. Indeed, I think that FN stock will pay its dividend for the foreseeable future without issue. I’m less sure that the stock will deliver high capital gains.
Companies that pay a high percentage of earnings as dividends often deliver slow capital gains. The reason is that the dividend payments interrupt the process of re-investing profit into the business. First National’s payout ratio (the percentage of profit paid as dividends) actually decreased last year. However, its earnings growth is slowing down — if it wants to keep hiking its dividend, then its stock price gains might suffer.
Foolish takeaway
On the whole, I’d be content to hold a stock like FN in my portfolio, but I wouldn’t hold it at a massive weighting. It pays high dividends but isn’t expected to deliver high capital gains. I think a typical stock market return (10% per year) is about what this company will do.
