High-yield dividend stocks appeal to income-focused investors, but not all are sound prospects. Some might be dividend traps. It would help if you also considered the stock performance and payout consistency.
The TSX is home to several generous dividend payers, especially utility stocks. Atrium Mortgage Investment Corporation (TSX: AI) doesn’t belong to a defensive sector but is attractive for its generous payout. At $10.76 per share, you can partake in the 8.4% yield. But is this financial stock as good as its dividend offer only?
Non-bank lender
Atrium is a $476.8 million mortgage investment corporation, or MIC. This 22-year-old MIC pools money from investors to fund mortgages secured by Canadian real estate. Moreover, under Canada’s Income Tax Act, MICs don’t pay taxes on income paid to shareholders as dividends.
This non-bank lender provides residential and commercial mortgages but is highly selective, if not conservative. Atrium lends only to clients in major urban centres (mainly in Ontario and Western Canada) where the stability and liquidity of real estate are high.
The property types in the mortgage portfolio consist of low to high-rise residential, house, apartment, condominiums, and commercial. Of the 250 properties, 93.2%, or 233, are residential. The rest (17) belongs to the commercial portfolio.
Atrium’s lending program implements conservative risk parameters to preserve shareholders’ equity and ensure stable and secure dividends. Despite the downturn in the real estate industry due to high interest rates, the stock is up 6.5% year-to-date versus the TSX’s 5.3%-plus.
Financial performance
Its CEO, Rob Goodall, said, “Atrium began 2024 with another strong quarter. Our lending program is specifically targeting lower risk sectors.” In Q1 2024, total revenues increased 6.3% year-over-year to $25.2 million, while net income declined 15.3% to $12 million compared to Q1 2023.
Atrium’s allowance for mortgage losses at the quarter’s end was $24.9 million (2.8% of the mortgage portfolio), representing a 10.2% increase from year-end 2023. Goodall noted that earnings per share of $0.27 was at par in Q4 2023 but higher than the $0.225 dividends declared.
“Maintaining a defensive portfolio remains our top priority,” Goodall added. The average loan-to-value of Atrium’s mortgage portfolio is a conservative 64%, while 96.7% are first mortgages. Atrium has focused predominantly on first mortgages, and only the Board of Directors can change investment and lending policies. The term of the mortgage is generally not more than 10 years.
On May 14, 2024, Goodall said the prospect of lower rates and easing inflation in the second half of the year should improve market conditions. The Bank of Canada initiated the first rate cut on June 5 this year. Still, Goodall said Atrium will continue to focus on its preferred sectors for new loan business.
Stable business
Atrium is the real deal because the business is stable. The MIC capitalizes on the underserved borrowers not covered by larger financial institutions but with acceptable underwriting risks. How could the financial stock pay special dividends on top of the regular dividends every year since 2019 if the business is not stable?
