Dividend investing is a path for regular folks to build wealth or secure their financial futures. The investing strategy also has the potential to make you a millionaire through the power of compound interest. However, the journey to $1 million requires patience and a considerable amount of time.
The prerequisite to success is always the choice of stocks. Not all dividend stocks are safe, so it would help to evaluate a company and see if it is financially healthy to sustain dividends for decades until you retire.
Dividend titan
MCAN Mortgage (TSX: MKP) fits the bill not only because it is a dividend titan. The $597.2 million loan company operates under the Trust and Loan Companies Act (Canada) and is regulated by the Office of the Superintendent of Financial Institutions Canada (OSFI).
Second, MCAN is also a Mortgage Investment Corporation (MIC) under the Income Tax Act (Canada). It is allowed to deduct dividend payments to shareholders from its taxable income. Furthermore, MCAN’s lending policy is more conservative compared to that of other regulated financial institutions.
Businesses
MCAN Homes, MCAN Capital, and MCAN Wealth form the entire business. The first provides mortgage solutions for first-time buyers, self-employed individuals, professionals, property investors, and borrowers with credit issues.
MCAN Capital assists in real estate investing through construction and commercial loans, private investment funds and real estate investment trusts (REITs). MCAN Wealth focuses on Canada Deposit Insurance Corporation, or CDIC, insured term deposit investment solutions. Product offerings include low-risk Guaranteed Investment Certificates (GICs).
Financial performance
The lending environment has been tough since 2020, with the global pandemic and the current high interest rate scenario. Still, MCAN has consistently delivered profits in the last four years amid massive headwinds. In 2023, net income climbed 40% to $77.5 million compared to 2022.
Management credits the mortgage portfolio growth and higher spread of corporate mortgages for the jump in net income. High net origination volumes, including strong renewals in residential mortgages, contributed to the financial performance. In the first quarter (Q1) of 2024, net income was $23.2 million, consistent with the $23.3 million net income in Q1 2023.
Given the current market conditions, MCAN will focus on maintaining a solid net interest margin, managing portfolio maturities, and investing in or expanding the core business in the short to mid-term. “We remain committed to driving sustainable growth and maximizing shareholder value in the long term,” said Don Coulter, chief executive officer (CEO) of MCAN.
$1 million potential
As of this writing, MKP trades at $15.71 per share and pays a juicy 9.93% dividend. The proposed investment of $53,000 is less than twice the Registered Retirement Savings Plan (RRSP) contribution limit in 2024, or $31,560. Based on the allowable RRSP contribution, it would take two years to complete the seed capital.
Assuming the dividend yield remains constant, the money invested, on a quarterly compound frequency, will grow to $1,005,174 in 30 years. The quarterly payouts are well covered by earnings, evidenced by the 68.64% payout ratio. Last, a higher investment amount should shorten the investment time frame.
MCAN has never missed a quarterly dividend payment since 2012. The best part is that the 9.93% dividend yield is in the top 25% of TSX dividend payers (6.37%).
