The Bank of Canada began its rate-cutting cycle in early June 2024, a welcome relief to consumers and businesses burdened by higher borrowing costs. Canadian stocks will likely build momentum in the next cut, either in July or September. But one stock that can dominate the TSX in the coming months is Timbercreek Financial (TSX:TF).
Despite the debilitating effect of high interest rates, the non-bank lender has endured massive headwinds in the mortgage finance industry. This dividend payer outperforms year to date (+14.25%) and should do much better in a stable rate environment.
If you invest in TF today, the share price is $7.22, while the dividend yield is a mouth-watering 9.38%. With the monthly dividend payout, a $12,793.84 investment (1,772 shares) will generate $100 in monthly passive income.
Business overview
Timbercreek Financial provides short-term structured financing solutions (not more than five years) to commercial real estate investors. This $610.95 million alternative asset investment manager is also conservative. The company invests in high-quality structured mortgage loans secured by income-producing commercial real estate such as multi-residential, office, and retail buildings.
According to Blair Tamblyn, chief executive officer (CEO) of Timbercreek, management purposely exercised caution on lending through much of 2023. However, the team is optimistic that a stable interest rate environment this year will promote increased commercial real estate activity. It would also present attractive risk-adjusted opportunities to expand the portfolio in the coming quarters and return to historical levels.
Strong start to 2024
Tamblyn said Timbercreek’s originations in the first quarter (Q1) of 2024 were strong despite a typically competitive first quarter. The portfolio also grew modestly from year-end levels. In the three months ending March 31, 2024, net income ($14.4 million) was solid, although it was 20.44% lower than in Q1 2023.
At the quarter’s end, the weighted average loan-to-value of the conservative portfolio risk was 64.4%, while 85.7% of properties in the mortgage investment portfolio were first mortgages. Moreover, 85.7% of investments in the same portfolio are in cash-flowing properties.
Because of significant repayments in the last two quarters, net mortgage investments declined 3.31% year over year to $977.5 million. Still, Tamblyn added that Timbercreek delivered on its monthly distribution commitment to shareholders at a comfortable payout ratio.
In addition to the regular monthly dividends ($14.3 million total), the board of Timbercreek Financial approved and declared a special dividend ($4.8 million) for the quarter. Tamblyn said the reward to investors demonstrates the company’s ability to pay a special dividend and grow book value.
Timbercreek Financial usually pays dividends on the 15th of each month. Based on its dividend history, the stock hasn’t missed a monthly payout since August 15, 2016.
Bright outlook
Timbercreek Financial thrives amid an unfavorable environment. Its unique business plan and conservative lending program assure dependable income and sustainable monthly dividend payments. In February 2024, the company secured a new $510 million revolving credit facility for net mortgage investments or future acquisitions.
The non-bank lender believes the succeeding rate cuts would promote increased commercial real estate activity. It should also improve the economics of property deals and result in higher income and business growth for Timbercreek Financial.
