It’s not easy to find a stock that pays out a hefty dividend, shows consistent performance, and trades at what looks like a bargain. But every so often, one appears to tick all the boxes. MCAN Mortgage (TSX:MKP) is exactly that kind of stock right now. With a yield around 8.6%, a steady track record of dividend payments, and an undervalued share price, this TSX-listed powerhouse deserves a closer look.
Source: Getty Images
About the stock
MCAN is a mortgage investment corporation. That means it earns money by investing in residential and commercial mortgages, as well as other real estate-based assets. It operates much like a bank, but without the same kind of overhead or exposure to traditional banking risks. Because it focuses primarily on generating income from its mortgage portfolio, it’s able to pass much of that income onto shareholders through dividends. And right now, those dividends are looking especially juicy.
As of writing, MCAN’s annualized dividend yield sits at 8.6%. That’s well above what you’d get from most blue-chip dividend stocks or even a high-interest savings account. The quarterly dividend currently pays $0.41 per share, and those payments have not only been steady, but growing. In 2023, MCAN raised its dividend from $0.38 to $0.41 per share and has kept it there since.
And it’s not just the yield that makes this company attractive. The earnings continue to support the dividend. In its most recent annual report, MCAN announced net income of $77.6 million for 2024. Earnings per share (EPS) came in at $2.06. While this was a modest drop from $2.14 in 2023, it was still more than enough to comfortably cover the annual dividend of $1.64. The payout ratio, which sits around 85%, remains well within sustainable levels for a company in this line of business.
Value on income
The stock is also trading at what appears to be a discount. Shares are hovering around $19 as of writing. That gives it a price-to-earnings ratio (P/E) of 9. For context, the average P/E ratio for companies in the diversified financials sector in Canada is closer to 12 or 13. MCAN is priced as though there are risks around the corner, but so far, it has continued to deliver. It has a strong return on equity of 13.4%, a solid indicator that it is generating value for shareholders.
What makes this especially interesting is that MCAN’s business thrives in the kind of environment we’re in now. Interest rates have remained higher for longer than many expected. While that’s been tough on borrowers, it has boosted yields on new mortgage investments. MCAN has been able to redeploy capital into higher-yielding opportunities as older loans mature. This shift has helped offset some of the softness seen in other parts of the real estate market.
Another positive for MCAN is its conservative management approach. It maintains a diverse and well-collateralized mortgage portfolio. The company is focused heavily on urban markets in Canada, with a tilt toward single-family residential loans. It also limits exposure to high-risk development lending. That helps shield it from some of the volatility seen in the broader real estate market, particularly in commercial segments.
Foolish takeaway
All told, MCAN Mortgage checks a lot of boxes. High yield? Check. Steady earnings? Check. Reasonable valuation? Check. With interest rates staying higher for longer, it’s well-positioned to keep delivering for investors who are looking for income today and value for tomorrow. This is one stock that looks ridiculously undervalued, and one that income-focused investors may want to scoop up before the market catches on.
