This 6.9% Yielding Dividend Stock Remains a Top Choice for Passive Income

High yield dividend stock First National Financial (TSX:FN) remains a good value.

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Are you looking for high-yield dividend stocks to add some passive income to your portfolio?

If so, you might want to look at TSX financials.

TSX financial stocks often have high dividend yields. Thanks to Canada’s regulatory framework, they are not usually at risk of failure like U.S. financials sometimes are.

Bank stocks and related stocks have been among the TSX’s best performers over the last 20 years. In this article, I will explore one 6.9% yielding TSX financial that could add some much-needed passive income to your portfolio.

First National

First National Financial (TSX:FN) is a high-yield dividend stock in the financial services sector. It is a non-bank lender that issues mortgages but does not offer chequing or savings accounts. Instead, it funds its loans by issuing bonds. This unique business model gives First National a certain amount of protection from liquidity issues, compared to banks.

Much of a bank’s funding comes from chequing and savings accounts, which can be withdrawn at any time. This type of “non-sticky” deposit creates liquidity concerns. When treasury yields rise, investors often take their money out of savings accounts and put it into treasuries. This creates pressure on the big banks to raise interest rates; if they don’t do so, they may suffer “bank runs” of the type that caused several U.S. regional banks to fail last year. First National, as a non-bank lender, doesn’t face this problem. Financed by bonds instead of deposits, its mortgages are pretty safe.

This doesn’t mean that First National faces no liquidity issues at all. Like most financials, it is heavily leveraged, with much more debt than equity. However, the company has managed its debt well, using it to drive real results for shareholders. Over the last five years, the company’s revenue has grown at 11.2% per year and its earnings at 11.7% per year. Above-average growth. Also, the company has a sky-high 35% profit margin.

High yield

Thanks to its high growth and profitability, First National Financial is able to pay shareholders very high dividends. The stock pays $0.204167 in monthly dividends. Those dividends sum to $2.45 per year. At today’s stock price of $35.43, that gives us a 6.91% dividend yield. So, if you invest $100,000 into FN stock, you get $6,910 in annual passive income (see proof below).

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
First National$35.432,822$0.204167/quarter ($2.45 per year)$576/month ($6,913 per year)Monthly
First National dividend math

Good dividend growth

In addition to having a high yield, First National has also delivered high historical dividend growth. The company has raised its dividend every year for the last 12 years. Over the last five years, the dividend has grown at a rate of 5.3% per year. If the dividend growth continues, then those buying FN stock today will enjoy an even higher yield-on-cost in the future. This year, the company’s revenues and earnings are rising, so there is reason to think that the dividend will continue to rise.

Foolish takeaway

Factoring in valuation, dividends and growth, First National Financial appears to be one of the best TSX small cap opportunities today. It’s cheap, it’s growing, and it has a high yield. What more could you ask for?

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.

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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