Do you want to earn large dividends that come in each and every month? For the most part that’s a tough thing to find, but there are ways of obtaining it. Real estate investment trusts (REITs) generally pay monthly cash income, and there are other sectors, like pipelines, that are more likely to pay dividends monthly than the average stock is. In this article, I will explore a 6.6%-yielding dividend stock that pays out each and every month.
First National
First National Financial (TSX: FN) is a Canadian non-bank mortgage lender. It issues mortgages but, unlike a bank, does not take deposits. Instead, it funds its investments by issuing bonds, usually at much lower interest rates than the ones it collects from borrowers. The “spread” that FN collects on these debts and investments constitutes the lion’s share of its profit.
How is FN doing with its non-bank lending strategy?
Pretty well, it seems like. In its most recent quarter, the company delivered the following:
- $148.2 million in mortgages under administration (MUA), up 8%
- $538.9 million in revenue, up 2%
- $77.5 million in net income, down 14%
- $36.7 million in dividends, up 1.94%
- A 14.3% net income margin
Overall, it was a pretty good showing. Now, of course, revenue growth slowed, and earnings growth reversed, mainly due to the last quarter’s earnings being compared to a 2023 period, in which interest rates were still actively rising. With the Bank of Canada now actively cutting interest rates, it’s only natural for FN’s profits to take a bit of a hit. However, as we shall see, the company’s stock is cheap enough that it can afford to endure a modest, temporary decline in its profits over the next 12 months.
High growth
One thing that I should mention about FN is that despite the relatively tepid growth the company did in the most recent quarter, its long-term growth track record is great. Over the last five years, the company has grown its revenue by 10.3%, its earnings by 8.8% and its book value by 10%. All of these figures are compounded annual growth rates (CAGR), meaning they reflect per year growth. Cumulative growth over five years is much higher than the percentages you see above.
Valuation
The main thing that FN has going for it right now is a cheap valuation (or relatively cheap, at least). At today’s prices, it trades at the following:
- 9.5 times earnings
- Three times sales
- Three times book value
- A 0.82 PEG (price-to-earnings-to-growth) ratio
The company’s PEG ratio is below the level that investors normally want to buy under (one), so this stock may be worth the investment at today’s prices if it can return to growing again in the future.
Foolish bottom line
The bottom line on First National is that it’s among the highest-quality monthly payers in Canada and has a 6.6% dividend yield. I haven’t bought it because I’m not specifically seeking out monthly payments, but if I were looking for monthly dividend stocks, this one would be near the top of my list. It’s cheaper than most of the big banks and has a much higher yield than they do.
