Investors can transform their money, regardless of amount, into recurring passive income through dividend investing. High-yield stocks are the best options for income-focused investors. However, if you’re risk averse and want to be safer, one TSX stock can be a lucrative passive-income source.
Firm Capital Mortgage Investment (TSX: FC) pays an over-the-top dividend at a relatively lower price. Moreover, this small-cap stock has been steady, notwithstanding the inflationary environment. At $11.60 per share, the year-to-date gain is 13.13% (the TSX’s year-to-date gain is +13.09), while the trailing one-year price return is 29.7%.
Yearly passive income
Firm Capital’s dividend offer is 8.07%. You can earn $2,546.25 yearly if you purchase or accumulate 2,720 shares ($31,552 total investment). The best part about this non-bank lender is that it pays monthly cash dividends. You can hit your financial target faster by reinvesting the dividends 12 times a year instead of four.
| Company | Recent Price | No. of Shares | Div/Share | Total Payout (One Year) | Frequency* |
| Firm Capital | $11.60 | 2,720 | $0.9361 | $2,546.25 | Monthly |
Furthermore, Firm Capital hasn’t missed paying a monthly cash dividend since January 2013 (141 consecutive months).
Business overview
The $426.1 million company operates through Firm Capital, providing residential and commercial real estate financing. Management’s growth strategy is to focus on selected niche markets that are large lending institutions shun or don’t serve at all. Firm Capital originates loans, underwrites, and offers loan and syndication services.
Firm Capital is highly profitable because of less competition in the target markets. The average net income in the last four years (2020 to 2023) is $36.8 million. Besides the predominantly first mortgage portfolio, management maintains a stringent policy towards risk management.
Strong default management policies are also in place. The management team and board of directors’ experience in the real estate lending marketplace is a competitive advantage.
Financial highlights
As of June 30, 2024, the gross carrying amount of Firm Capital’s investment portfolio consists primarily of conventional first mortgages (89%). In the first half of 2024, total revenues and net income declined 8.72% and 0.76% year over year to $33.3 million and $17.1 million, respectively.
Management’s primary concern is security, and they won’t set a target for portfolio size. However, for the rest of 2024, the company expects to continue revolving the investment portfolio selectively. It will maintain a hard line on acceptable exposure levels, borrower quality, and warranted interest rate pricing. Firm Capital will reject potential investments that do not meet the investment criteria and risk tolerance.
Historically, Firm Capital mitigates loan loss risk by concentrating its mortgage lending in markets that withstand corrections and preserve underlying real estate asset values. The weighted average loan-to-value ratio on conventional mortgages is below 55% based on the appraisals obtained at the time of the mortgage loan drawdown.
Investment takeaway
As a mortgage investment corporation, Firm Capital’s income is not taxable but paid to shareholders as dividends. The company attract income investors because of its stable monthly dividends.
Furthermore, the conservative lending program and diversified mortgage portfolio assure stable shareholder returns. More importantly, the current share price is a steal vis-à-vis the juicy monthly dividends.
