Are you looking for dividend stocks that pay cash every single month? They aren’t always easy to find, but they do exist. Typically, they are smaller companies in the energy, utilities and/or financials sectors. In many cases, monthly pay dividend stocks aren’t the best in their industries. However, some of them are quality companies. In this article, I will explore one monthly pay dividend stock that has a hefty 6.3% dividend yield.
First National
First National Financial (TSX: FN) is a Canadian non-bank lender with a 6.3% dividend yield. It pays a $0.204167 dividend each month, which works out to $2.45 per year. A $100,000 investment in it pays out $6,300 per year, which is $525 on a monthly basis. You can shelter $95,000 in a TFSA if you’re old enough; $94,000 invested in FN yields $498.16 per month.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| First National | $38.54 | 2,440 | $0.204167 per quarter ($2.45 per year) | $498.16 per month ($5,978 per year) | Monthly |
What it does
First National loans money to unconventional borrowers (e.g., the self-employed), as well as landlords. It has a program, called “Excalibur,” which explicitly seeks to obtain financing for Canadians who may otherwise struggle to obtain financing. It does this through a network of independent mortgage brokers nationwide.
When you hear First National described as a company that “lends money to people who struggle to obtain financing,” you might worry that it is a “sub-prime lender” of the type which got in trouble in the U.S. in 2008. This does not appear to be the case. Its average rate for a five-year variable rate mortgage is 5.5%, which is only 0.35% higher than the lowest available in Canada.
High growth
Despite its cheap valuation (10 times earnings), FN has good growth for a financial. In the last year, its revenue grew 5.7% and its earnings grew 11.6%. Over the last five years, revenue grew 8.8% per year and earnings grew 10% per year. So, the company has been doing fairly well in terms of growth.
High profits
Another thing that FN has going for it is high profitability. In the last 12 months, the company had an 85.2% gross margin, a 32.6% net margin, and a 34% return on equity. These numbers were all quite good. The ROE in particular was excellent.
A reasonable payout ratio
Last but not least, despite its high yield, FN appears to be maintaining a sensible payout ratio. FN paid out 64% of its earnings as dividends in the trailing 12-month period. That’s a little higher than most of the big banks’ payout ratios, but not as high as the payout ratios you usually see among REITs, utilities and pipelines.
Will the Bank of Canada’s interest rate cuts threaten things?
One risk facing FN and its shareholders today is the Bank of Canada’s rate cuts. The Bank has cut rates three times already, and it has pledged to cut more. This might result in somewhat lower net interest at FN, but the company may be able to offset that with more loan origination, as low rates drive more housing market activity.
