The stock market is known for its unpredictability and risk. But amid this dynamic investment environment, there are pockets of predictable income opportunities. Companies that pay dividends enjoy regular cash flows and pass on a certain percentage of this income to shareholders as dividends. While most companies give quarterly dividends, this company pays cash every month. And with the recent decline in the stock market, its dividend yield has increased to 8.98%.
Several ways to invest in dividend stocks
The dividend yield is the annual dividend per share as a percentage of stock price. It means that for $1,000, you can get $89.8 in dividends per year. And this company has been paying regular monthly dividends for eight years in a row. Moreover, this company also offers a dividend-reinvestment plan (DRIP) in which, instead of taking a payout, you can buy more shares of the same company and accumulate more income-generating shares. Over the years, dividends will compound and give you more cash per month. You can discontinue the DRIP whenever you need extra cash and restart the DRIP when you don’t need the money. It is a good way to build a passive-income pool.
This 8.98% dividend stock pays cash every month
The stock I am talking about is Timbercreek Financial (TSX:TF). It gives short-term mortgages to real estate investment trusts (REITs) to develop and buy income-generating property. Since the borrower is taking a loan to earn income, Timbercreek Financial has a relatively lower credit risk. It earns money from interest paid by borrowers and from the loan processing fee.
Last year, when interest rates were at a decade high, it enjoyed a 10% yield on its loan portfolio. However, it saw a significant amount of loan repayments as real estate investment trusts (REITs) went on a debt reduction spree to cut their interest expenses. Moreover, the turnover fell, slowing its revenue from processing fees. This trend continued till the second quarter. It also saw some loans go into stages two and three as the real estate market suffered from property price correction in 2022.
While commercial REITs and properties purchased before the pandemic continue to struggle, property buying is picking up momentum. The revenue and net income of Timbercreek Financial fell in the second quarter, but it expects better activity in the second half of 2024. The Bank of Canada’s recent rate cuts and slowing inflation are setting the road to recovery for the real estate market.
Timbercreek Financial is currently at its lowest, and even at that level, it has sustained its dividends per share. The payout ratio is 87.8% of the distributable income. From here onwards, the lender expects to see an increase in its processing fee revenue and loan turnover ratio.
The recovery is also visible in the stock price of Timbercreek Financial, which dipped 10% in the second quarter (April-June) and has surged 10% since then.
Here’s what a $10,000 investment today could earn
TF’s share price is trading at $7.68, a discount from its book value of $8.42. You can avail of the discount and invest a lump sum of $10,000 now. It will buy you 1302 shares of TF, which will pay $224.6 in dividends for the remaining three months of 2024. If you put it in DRIP, your investment could compound and give you as much as $141 cash per month. Here’s how.
| Year | TF DRIP Shares | TF Share count | TF Dividend per share | Total Dividend Amount |
| 2024 | 1,302.0 | 1,302.0 | $0.6900 | $224.60 |
| 2025 | 23.04 | 1,325.0 | $0.6900 | $914.27 |
| 2026 | 93.77 | 1,418.8 | $0.6900 | $978.98 |
| 2027 | 100.41 | 1,519.2 | $0.6900 | $1,048.26 |
| 2028 | 107.51 | 1,626.7 | $0.6900 | $1,122.44 |
| 2029 | 115.12 | 1,741.9 | $0.6900 | $1,201.88 |
| 2030 | 123.27 | 1,865.1 | $0.6900 | $1,286.93 |
| 2031 | 131.99 | 1,997.1 | $0.6900 | $1,378.01 |
| 2032 | 141.33 | 2,138.4 | $0.6900 | $1,475.53 |
| 2033 | 151.34 | 2,289.8 | $0.6900 | $1,579.95 |
| 2034 | 162.05 | 2,451.8 | $0.6900 | $1,691.76 |
The $224.6 dividend can buy you 23 DRIP shares, assuming the average trading price of $9.5. If the stock price remains low, it can buy more DRIP shares. Your share count will keep growing every year. I took an annual reinvestment cycle for ease of calculation. In reality, new DRIP shares are getting added every month. If the fear of recession materializes and the market falls, your dividend can buy more DRIP shares and increase passive income.
