Are you looking for Canadian stocks that cut you a cheque each month?
If so, you’re in luck.
There are several TSX stocks out there that pay their dividends monthly. While most stocks pay quarterly, there’s no shortage of stocks that cut you a sweet monthly cheque if you know where to look. In this article, I will explore two TSX stocks that cut you a dividend cheque each and every month.
First National
First National Financial (TSX: FN) is a Canadian non-bank financial stock that pay a dividend of $0.204167 per month. That works out to $2.45 per year for a yield of 6.63% at today’s stock price of $36.90.
First National is in many ways similar to a Canadian bank stock. It is a mortgage lender that issues mortgages to Canadians. Its key revenue-generating activity is basically identical to that of a retail bank. The difference is that FN does not take deposits. Instead, it issues bonds to finance its loans. This means that, compared to a bank, FN faces less yield curve risk.
“Yield curve risk” is the risk that the treasury yield curve changes in a way that is bad for your investments. For any investor in long-term bonds, a steepening of the yield curve (yields on long-term bonds rising) is bad because it means that their bonds are going down in price: on a fixed-income instrument, a rising yield comes from a declining price.
Banks, as issuers of long-term debt securities, face a different but related risk: flattening or inversion of the yield curve. Banks finance their loans with deposits, which are usually short term (checking and saving accounts can be withdrawn on a moment’s notice, while Guaranteed Investment Certificates usually mature in a year). Because depositors can withdraw their deposits so quickly, banks face pressure to match short-term treasury yields. They need to offer depositors bang for their buck. When they raise these yields amid an inverted yield curve, the “spread” between deposits and loans shrinks, and net interest margin shrinks. So, inverted yield curves — like the one now observed in Canada — are bad news for banks.
First National doesn’t face this problem. It simply issues long-term bonds to finance its long-term mortgages. So, in an environment of rising rates, it’s relatively safe compared to a bank.
Killam Apartment REIT
Next up, we have Killam Apartment REIT (TSX: KMP.UN). This is a Canadian real estate investment trust (REIT) that pays out $0.0583 per month, or $0.70 per year. At today’s price of $17.82, that gives us a yield of 3.92% — not too shabby.
Killam Apartment REIT owns mainly residential real estate, so it isn’t exposed to the commercial real estate that is causing so much grief these days. Instead, it is heavily invested in apartment buildings, chiefly in East Coast markets like St. John’s and Halifax, which are much cheaper and, therefore, have more room to run than the larger markets. Over the last five years, KMP has grown its funds from operations by 5% per year on a compounded basis. That’s better than most REITs can boast in this era of rising rates.
