Many investors want to hold dividend stocks that pay monthly. There are several reasons for this, the main one being that for investors who depend on investment income to pay their bills, the high payment frequency makes liquidity management easier. Some just like the idea of monthly payments in itself. That’s not really a valid reason to prefer stocks that pay monthly; higher payout frequency doesn’t boost returns. Nevertheless, for those who count on their dividends to pay their monthly bills, there’s a case to be made that the monthly pay feature is desirable. In this article, I will explore a 6.18% dividend stock that pays investors every month.
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First National
First National Financial (TSX: FN) is a Canadian non-bank financial whose shares yield 6.18%. The high yield comes from a $2.50 annual dividend ($0.208334 per month) and a $40.41 share price. It’s a pretty substantial yield.
How much monthly and annual passive income could you make with First National Financial stock? There’s always some possibility of a company cutting its dividend, but it’s not all that common, so here’s how much you’d likely make in annual dividend income on a $10,000 investment in First National Financial.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| First National Financial | $40.41 | 248 | $0.208334 per quarter ($2.50 per year) | $51.66 per month ($618 per year) | Monthly |
So, you can get about $51.66 in monthly dividends and $618 in annual dividends from a $10,000 investment in First National Financial.
Solid growth (with one catch)
First National Financial has been doing some solid growing in recent years. Over the last decade, it has compounded its revenue, earnings and book value at the following annual rates:
- Revenue: 7.48%
- Earnings: 7.47%
- Equity: 7.35%
This year, the growth continues on the top line. In the most recent quarter, revenue increased 19% year over year, and earnings increased 43%. In the most recent fiscal year, revenue increased 10% while earnings declined 20% — a somewhat mixed showing in the more recent periods, but if FN’s long-term track record is anything to go by, the company should start growing again.
There is a slight catch to my claim that First National Financial had positive top-line growth in the recent quarter and fiscal year. While gross revenue was certainly up in these periods, pre-fair market value (FMV) income was down in both. Pre-FMV income is roughly equivalent to “net revenue” for mortgage lenders. By this metric, FN did not have positive revenue growth in the periods just described. Perhaps, then, we could call FN’s recent periods mixed showings on the top line, with gross revenue up and “net revenue” down.
Dividend coverage
Previously, I mentioned that dividend stocks sometimes cut their dividends. To gauge whether this will actually happen, we need to look at the payout ratio, which is dividends divided by earnings. In FN’s case, this metric is 69%. This is quite satisfactory by the standards of many companies (real estate investment trusts and pipelines often pay out more in dividends than they earn in profit). However, it is quite a bit higher than the big Canadian banks. I’d say that FN’s showing on dividend coverage is satisfactory but not amazing.
A cheap valuation
Last but not least, we can look at FN’s valuation metrics. By many metrics, FN is quite cheap, trading at 11 times earnings, 3.3 times sales, and 2.65 times book. The price-to-earnings ratio is higher than that of Toronto-Dominion Bank but lower than that of Canadian big banks as a class. Overall, FN is a worthy alternative to large Canadian banks.
