Are you looking for a quality dividend stock that has a high yield and pays out cash every single month?
There aren’t too many of them around, but they do exist. Monthly pay dividend stocks are usually found among smaller energy companies and real estate investment trusts (REITs). They aren’t always the highest quality companies, but some of them are reasonably good investments. In this article, I will explore one monthly-pay dividend stock that is of reasonably high quality, in addition to having a monthly payout schedule.
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First National
First National Financial (TSX: FN) is a Canadian non-bank lender that issues mortgages through brokers nation-wide. The company does not operate off a branch model like banks, but instead partners with brokers who find borrowers for FN to lend money to.
First National specializes in lending to Canadians who are fairly creditworthy, but are often cut off from bank financing due to having characteristics that are frowned upon. Examples include self-employed people, freelancers, and retirees. People in these categories are often denied financing despite having good credit scores, as their income sources are seen as unreliable.
Banks don’t refuse to lend to the categories of people listed above for no reason. They do have certain risk factors that aren’t always captured in their credit scores. So most likely, First National’s loan book is somewhat riskier than that of the average large Canadian bank. However, it is not extremely risky, going by the bank’s interest rates. At 4.54% for a five-year fixed rate mortgage, the company’s rate is actually lower than the one TD Bank offers for a five-year fixed mortgage.
Interest rates are usually an indication of how risky banks think a loan is. The fact that First National is charging rates similar to those of the big banks indicates that it does not believe its borrowers are exceptionally risky. Now, FN could simply be making a mistake here, and thinking its borrowers less risky than they actually are. However, as a professionally run company with credit analysts and other such experts on staff, lm it’s risk assessments are likely within the realm of sanity.
Respectable growth
For a high yield stock, First National has done a respectable amount of growth over the years. Over the last five years, the company has compounded its revenue and earnings by 5.5% and 2.8%, respectively. Over the last 10 years, the rates were 5.8% and 4.1%. Unfortunately, the company’s revenue and earnings have declined this year due to the Bank of Canada’s rate cutting. It’s for this reason that I’d prefer to wait for a cheaper price before buying this stock, rather than buy it right this minute.
High profitability
Another thing that FN has going for it is good profitability metrics. In the last 12 months, it had an 86% gross profit margin, a 28% net income margin, and a 26.7% return on equity. These metrics indicate that the company is very profitable.
Good assets
Last but not least, First National Financial holds high quality assets. It does not hold the mortgages it issues for long, but instead securitizes and sells them to others. The resulting proceeds are then invested into low risk assets like treasuries. This approach helps ensure that First National Financial remains a sound and stable company.
