What makes a high-yield dividend stock good? The yield is the primary attraction, but it can also indicate an underlying problem (or multiple problems) with the business or the stock that resulted in a discount that pushed the yield upward to high levels.
So, we have to look into factors like sustainability and dividend history to determine whether a high-yield dividend stock is suitable for your portfolio. Business models and finances are also worth considering.
With that in mind, let’s assess MCAN Mortgage (TSX: MKP) and whether it’s an excellent high-yield pick for most investors.
The business and its finances
As the name suggests, MCAN Mortgage is a mortgage company that offers a variety of mortgage solutions, mainly to residential clients. Commercial mortgages make up only 1% of its current portfolio. The company also has a massive network of brokers—over 3,000 across the country—and issued loans worth $940 million in 2023 alone.
While it’s still the chief business of the company, it’s branching out and expanding its business model, which now also includes wealth management and real estate investment.
The financials are moderately healthy. In the last two of eight quarters, the company sustained a loss attributable per share and a profit in the remaining six. The net income experienced a sizable growth in the last quarter.
With its current track record and numbers, especially in a volatile real estate market, the chances of financials improving over the years are higher than their chances of worsening.
Is the stock right for you?
Even though the mortgage market is dominated by big banks, MCAN Mortgage has carved out a sizable piece of the market for itself. The financials are healthy as well. So, the focus of evaluation should shift to dividends.
The company is currently offering a mouthwatering yield of about 9.6%. A steady rise in payouts is the reason behind the high yield, not a major slump. The stock has been quite steady in the last couple of years and is attractively valued with a price-to-earnings ratio of just 7.6. It seems adequately resilient as well since it hasn’t dipped with the rest of the market (yet).
The dividend history of the company is quite impressive as well. It has raised its base payouts modestly but consistently in the last five years at least. It has also issued generous special dividends in some of the years. Despite the generous payouts and high yield, the payout ratio hasn’t pushed into the dangerous territory (above 100%) once in the last 10 years.
Foolish takeaway
After taking these factors into account, it wouldn’t be unreasonable to say that MCAN Mortgage is among the best small-cap stocks you can buy for its dividends, as it’s currently valued at $636 million. It’s also a safe, high-yield dividend stock that may be a compelling addition to your retirement or passive-income portfolio.
