Monthly-pay dividend stocks are many investors’ dream assets. They often have high yields, and they always have more frequent payouts than most dividend stocks.
Unfortunately, not all monthly-pay dividend stocks are great investments. Some of them are low quality companies that offer a monthly payout to whip up interest from dividend investors.
Nevertheless, there are some stocks paying high monthly income that are offered by good companies. In this article, I will explore one such stock that you can buy today on the TSX for less than $50.
First National
First National Financial (TSX:FN) is a Canadian non-bank lender. A non-bank lender is a company that lends money but does not take deposits, making it technically not a bank. FN is a monthly-pay dividend stock with a 6.6% yield.
First National issues both commercial and residential mortgages. It finances the mortgages by issuing bonds. FN’s bonds typically have pretty long terms to maturity, making them less risky than the chequing and savings accounts that banks rely on to finance their loans.
The way First National Financial attracts business is by partnering with mortgage brokers. Mortgage brokers have people who are shopping around for the best mortgage rates, and in many cases aren’t satisfied with the rates quoted by the first bank they talk to. Brokers help FN find business by introducing the company to such people.
First National has been doing pretty well in recent years. As you can see in the chart above, it’s up considerably over the last five years. It’s not easy to see the exact percentage change from the chart, but I worked it out by hand and it is a 66% total return, not even including the stock’s large dividend payments. Nice!
Why it’s been doing so well
One of the main reasons why FN stock is performing well is because the underlying business is performing well. In its most recent quarter, FN delivered:
- $503.4 million in revenue, up 21.7%.
- $77 million in pre-fair market change income, up 29.5%.
- $44.2 million in net income, up 2.85%.
- $0.72 in diluted earnings per share (EPS), up 2.85%.
- $143.5 billion in mortgages under administration, up 9.54%.
Overall it was a good showing. Net income didn’t seem to grow much, but that was mostly due to declines in the market values of FN’s loans. The non-fair market value income figure (excludes the accounting change in loan values) went up quite a bit.
How much income you could earn from this monthly-pay dividend stock
With its 6.6% dividend yield, FN could pay you a lot of income. And, as a monthly-pay dividend stock, the payouts are made each and every single month. An investment of $100,000 at a 6.6% yield is $6,600 per year. If the company keeps putting out record results like it did last quarter, FN may raise its dividend. It has raised its dividend at a rate of 5.3% per year over the last five years. Still, its payout ratio is just 60%, so it has plenty of room to raise the payout further, especially if its earnings keep growing. Interest rates are pretty high these days, at least by recent standards, so there’s a decent chance that FN has a few more dividend hikes coming in the future.
