What’s Next for Atrium Mortgage and its 8% Dividend Yield?

The outperforming AI stock on the TSX in 2024 is not a tech company but a high-yield, non-bank lender.

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Artificial intelligence, or AI, is everywhere and making waves. People are jumping on the bandwagon, including investors. Mega-cap tech stocks Microsoft, Alphabet, and NVIDIA (NASDAQ:NVDA) are soaring thanks to the strong demand for generative AI.

On the TSX, the ticker AI is outperforming the broader market. However, the company behind it is a non-bank lender, not a technology firm. Because of its generous dividend yield, Atrium Mortgage Investment Corporation (TSX:AI) is an attractive investment option, especially for income-focused investors.

At $11.12 per share, the financial stock is up 8.85% year to date and pays a mouth-watering 8.04% dividend. But is there more this AI can offer to investors besides the hefty monthly payout?

Not a hype

Atrium went public nearly 12 years ago and used the ticker symbol AI way before the hype over artificial intelligence. The $497 million MIC extends residential mortgages, commercial term & bridge financing, construction & mezzanine financing, and land & development financing to quality borrowers. It focuses on the major urban centres in Ontario and Western Canada.

Today, Atrium boasts a diversified residential, multi-residential, and commercial mortgage portfolio. All types of properties secure the mortgages, while the lending strategy is defensive, given that 96.7% of the portfolios are first mortgages. Also, 88% are conventional mortgages, which means the loan-to-value (LTV) is 75%.

Atrium’s primary objective is to provide shareholders with stable and secure dividends. The MIC follows and lends within conservative risk parameters to preserve shareholders’ equity. Thus far, monthly dividend payments since its initial public offering are impeccable and without fail.

Furthermore, Atrium has declared a special dividend on top of the regular dividend every year since 2019.

Top priority

Net income has risen consistently since 2020, averaging $44.7 million annually. In the first quarter (Q1) of 2024, revenue increased 6.3% year over year to $25.2 million, while net income declined 15.3% to $12 million compared to Q1 2023. The provision for credit losses (PCL) rose 10.2% to $24.9 million versus $22.6 million at year-end 2023.

Its chief executive officer, Rob Goodall, said, “Atrium began 2024 with another strong quarter. Our lending program is specifically targeting lower risk sectors in order to protect shareholder capital during this downturn in the cycle. Maintaining a defensive portfolio remains our top priority.”

Goodall added that increasing the allowance for mortgage losses was necessary due to the continued challenges in Canada’s real estate markets. Other business highlights include the 4.8% year-over-year increase in the mortgage loan portfolio to $886.1 million. The average LTV of the portfolio as of March 31, 2024, is 64%.

Well-positioned

Atrium MIC likes its standing in the major urban centres right now. Because of the limited coverage by financial institutions, the company is well-positioned to fill the lending gap. Atrium co-lends with a financial institution or private lender for big-ticket items.

Management acknowledges the current headwinds, such as elevated interest rates, increased construction costs, and financial stress on end consumers. However, Atrium will continue focusing on high-quality, lower-risk mortgages at lower spreads.

Atrium expects market conditions to improve in the second half of 2024 as inflation cools. It should eventually lead to lower interest rates. Moreover, the high dividend yield should be sustainable going forward with a minimal uptick in the stock price.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends Alphabet, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.

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