Are you looking for ways to generate passive income? Having only one income stream is not good enough anymore. Finding more ways to make money is essential to achieving your short- and long-term financial goals. Stock market investing offers plenty of ways to use your money to earn more without doing anything.
Investing in high-quality, high-yielding dividend stocks can be an excellent way to build a portfolio that earns passive income. The TSX sector boasts plenty of dividend stocks you can consider for this purpose. Canadian financial stocks have long been staple holdings for investors to earn reliable passive income through dividends.
Canada’s strict regulatory framework for the financial sector makes Canadian bank stocks much safer than many of their counterparts operating across the border. Typically, the top Canadian bank stocks do not boast high-yielding dividends. However, there is a financial stock you can consider investing in right now to leverage the pullback in share prices and lock in high-yielding dividends.
Source: Getty Images
First National Financial
First National Financial (TSX: FN) is a Toronto-headquartered, $2.16 billion market capitalization financial services company. Unlike the Big Six Canadian banks, First National does not offer checking or savings accounts.
It operates as a non-bank lender that issues mortgages and funds its loans by issuing bonds. Compared to its peers with banking operations, its unique business model gives First National Financial a degree of insulation from liquidity issues.
Typically, banks rely on liquidity through checking and savings accounts from their customers. While that can provide a significant amount of liquidity, bank customers can also withdraw amounts from their accounts whenever they please. If too many customers withdraw deposits at a bank, it creates liquidity problems.
People tend to take money out of their accounts and allocate it to treasury bonds when yields are higher to get better returns. Unfortunately for banks, it means they have to compensate by increasing interest rates. The result can be customers withdrawing en masse. As a non-bank lender, First National’s reliance on deposits makes its mortgages safer than those with banks.
As with any business model, First National Financial does not enjoy complete immunity to liquidity issues. The approach also makes First National a highly leveraged company, with the financial services company having far more debt than equity. The good thing about FN stock is that it has managed its debt load well over the years, delivering significant revenue growth and growing shareholder value.
Foolish takeaway
As of this writing, First National stock trades for $36.06 per share, boasting a juicy 6.79% dividend yield. The annual dividends per share amount to $2.45 per share, but it distributes the payouts to shareholders on a monthly schedule of $0.204167 payments. Besides offering high-yielding dividends, it also has a track record of increasing payouts.
FN stock has raised its payouts to shareholders for the last 12 years, growing at an average of over 5% per year. Investing in its shares at current levels can mean even higher yielding dividends before its share prices rise again. Buying and holding this dividend stock at current levels can deliver substantial long-term wealth growth.
