Do you dream of retiring with large amounts of passive income coming in each and every month?
If so, it pays to look into monthly pay dividend stocks. Such stocks pay their dividends more frequently than other stocks, most of which pay quarterly. The monthly payout schedule does not make such stocks’ returns any higher than those of quarterly pay dividend stocks, but is convenient for those who live on dividend income. In this article, I share a 6.7% yielding monthly pay dividend stock that could fill your pockets with passive income each and every month.
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First National
First National Financial (TSX:FN) is a Canadian non-bank mortgage lender. It specializes in writing mortgages for creditworthy but unconventional borrowers, such as self-employed Canadians. Such Canadians in many cases have excellent credit scores but still get denied bank financing, because the banks think that they present certain risks that are not captured in their credit scores. First National disagrees, and lends these Canadians money, with the help of a nationwide network of independent mortgage brokers.
Dividend potential
It doesn’t take a whole lot of money invested in FN stock to get considerable dividend income coming in month after month. As the table below shows, you get more than $500 in cash back from FN each and every month if the dividend doesn’t change. Historically, FN’s dividend has in fact changed: it has gone up. I wouldn’t expect the company’s dividend to increase this year, as falling interest rates are causing FN’s revenue to decline. Still, the payout as it stands today seems fairly safe, with an 86% payout ratio based on trailing 12-month earnings.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| First National | $37.31 | 2,680 | $0.208334 per month ($2.50 per year) | $558 per month ($6,700 per year) | Monthly |
Valuation
At today’s price, FN stock is fairly modestly valued, trading at 10.5 times earnings, 3.3 times sales, and 3.5 times book value. This is a valuation typical of Canadian big banks a few years back (the banks are now trading closer to 15 times earnings). So you can think of FN as a cheaper alternative to Canadian bank stocks – with a higher yield and more frequent payouts to boot!
Performance
A definite negative for FN stock this year is the fact that the company’s revenue and earnings are both declining. This is due to a decline in mortgage banking activity as well as lower interest and dividend income. This situation might persist for a while, as mortgage rates are declining this year. The plus side is that the Bank of Canada announced at its last meeting that it did not expect rates to come down any further. So, we may have hit a trough in mortgage rates; if so, First National has probably hit a trough in revenue as well.
The bottom line
Not all monthly pay dividend stocks are great opportunities, but First National Financial is one of the rare hidden gems among monthly payers. The company is quite sound financially, and its dividend is more than covered by earnings. I would say stashing some FN shares in your RRSP or TFSA could be a good retirement move.
