Passive-income creation through investing in multiple dividend streams is one of the best ways to reach early retirement. It’s been shown time and again that picking up passive-income investments and reinvesting can compound your wealth when done for years, which is why it’s become so popular, especially during times of economic trouble.
When it comes to dividend stocks, higher yields aren’t always better. And yet, this is where many investors focus their attention. Instead, it’s far more beneficial to look into companies that have an unwavering commitment to dividends. No matter what, they will continue to reward shareholders with regular distributions as well as increases.
But to do this, these companies must be strong. They need proof of a solid balance sheet and top-line growth. That way, they can continue to deliver these payouts. This is why today, we’re focusing on First National Financial (TSX:FN).
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A dividend stock every investor should own
A perfect example of a strong dividend stock every investor should own is First National. This Canadian mortgage finance company has been around for decades, servicing commercial and residential mortgages. The company has a strong commitment to paying out dividends on a monthly basis and consistently increasing them.
Right now, the dividend yield sits at 6.41%. This is far higher than its five-year average of 5.75%. It’s also well supported by a 55.14% payout ratio. Meanwhile, you’ll be bringing in an annual dividend of $2.45. This has increased by a compound annual growth rate (CAGR) of 5.75% in the last decade.
When it comes to the company’s continued ability to pay dividends, we need to look at the company’s balance sheet. While earnings are due out on July 31, there are still multiple ways we can dig into strength.
Comparing earnings
With earnings on deck, we can look to the past to identify whether the dividend stock is gaining momentum. First National stock showed strong performance, with earnings per share (EPS) and revenue beating analyst estimates over the last few quarters.
Net income last quarter came in at $263.04 million, with a net margin of 34.57%. Furthermore, there was continued growth in mortgages under administration to $145 billion. Therefore, these figures show how the company can continue to bring in profitability to support dividend payments.
Now, there are always risks. Interest rates are one of them. While rates are going down, we’re still waiting for more of a drop. Economic conditions also don’t bode well for the mortgage industry. What’s more, First National is focused on the Canadian market, and this concentration could impact the company in the future.
Bottom line
All that being said, First National stock still looks like a strong dividend stock to consider on the TSX today. The dividend stock can pay out passive income immediately through its monthly dividend. Meanwhile, it trades just 8.76 times earnings, which is lower than its peers in the financial sector. This signals that it could be an undervalued stock. First National pays a dividend each and every month.
It simply doesn’t get better than First National stock. With a low share price, strong earnings on deck, a solid payout ratio, and a high dividend, it’s the perfect dividend stock. So, if you’re looking for a strong, long-term dividend stock for passive income, this one has to be on your watchlist.
