Canadian investors love their high dividend yields. And two that offer some of the highest out there are Fiera Capital (TSX: FSZ) and MCAN Mortgage (TSX: MKP). But a high dividend does not a strong company make.
This is why we’re going to dive into both of these passive-income stocks today. By doing so, we can hopefully identify which is going to be the better dividend stock to buy, right now. So, let’s get into it.
Fiera stock
While Fiera Capital offers a high dividend yield, the underlying financial health of the company is questionable. In fact, there are several red flags we should consider.
The most glaring issue is the extraordinarily high dividend yield and payout ratio. This indicates that the dividend is likely unsustainable in the long term. The dividend yield currently sits at 10.66%, with a payout ratio at a whopping 145.76% as of writing. A company cannot continue to distribute more than its earnings without depleting its capital.
Furthermore, the company carries a substantial amount of debt, as evidenced by the high debt-to-equity ratio. This increases financial risk, as the company may struggle to meet its debt obligations during economic downturns. And yet, despite the high dividend yield, the price-to-earnings (P/E) ratio of 13.68 suggests that the market might be pricing in future growth expectations. Given the company’s financial profile, this valuation might be optimistic.
The combination of unsustainable dividend, high debt, and valuation concerns outweighs the potential benefits. So, what about MKP stock?
MCAN Mortgage
Now, let’s move on to the strengths and weaknesses of MKP stock. Here, we’ve been seeing mostly strength. Even while support a high dividend. MCAN has demonstrated consistent profitability and a growing mortgage portfolio. These include a high profit margin of 62% and high return on equity (ROE) of 14.3%. This suggests a solid foundation for future growth.
Furthermore, the company’s high dividend yield remains attractive — especially given that it holds a stable 68.64% payout ratio as of writing for its 9.3% dividend yield. Add in that it also trades at just 7.63 times earnings, and it’s looking incredibly attractive indeed.
What’s more, as a mortgage investment corporation (MIC), MCAN operates in a relatively stable industry, which can provide a degree of protection against economic downturns. The company has shown growth in its mortgage portfolio, indicating potential for future earnings growth. Plus, compared to other financial institutions, MKP’s valuation metrics appear relatively attractive, suggesting it might be undervalued.
Therefore, MKP stock offers a compelling investment proposition with a combination of stable earnings, dividend income, and growth potential.
Bottom line
The choice is clear. Even with an ultra-high dividend yield, MKP stock can afford to support it. As an MIC, MKP operates in a relatively stable industry, which can provide a degree of protection against economic downturns.
MCAN has demonstrated consistent earnings, which is crucial for sustainable dividend payments. The company’s valuation metrics appear more reasonable compared to FSZ, suggesting a better value proposition, with debt under control.
Meanwhile, FSZ’s extremely high dividend payout ratio raises significant concerns about the long-term sustainability of its dividend. Fiera Capital also carries a substantial amount of debt, which increases financial risk.
So, while both companies offer high dividend yields, the sustainability of the dividend is paramount for passive income. MKP’s financial stability and lower risk profile make it a more attractive option for long-term, sustainable passive income.
