Did you know that there are some dividend stocks that pay cash monthly, rather than quarterly? While they aren’t well known, they do exist, and in significant numbers. According to my sources, about 2% of all Canadian stocks pay dividends monthly. Most of them are real estate investment trusts (REITs), while others exist in the midstream energy and financial industries. In this article, I share one monthly pay TSX financial stock that looks like a good value today.
Source: Getty Images
First National Financial
First National Financial (TSX: FN) is a Canadian mortgage lender that lends money to people who are frequently denied financing by traditional banks. These include self-employed people, gig workers, and others. The company does not lend to those who are uncreditworthy, in the sense of having low credit scores. Rather, it serves clientele whom the banks tend to deny credit for subjective reasons (i.e., feeling that their income is “unstable”).
A solid business model
In addition to focusing on a promising but overlooked borrower group, First National also has a sound, low-cost business model. The company does not operate branches or local offices. Instead, it partners with independent mortgage brokers to help its target borrowers gain access to capital. As a result of outsourcing its client acquisition, First National is able to keep staffing and office costs low. That is significant because the aforementioned are two of the largest overhead costs for most companies.
High margins
As a result of its low-cost business model, First National Financial is generally able to earn high profit margins. In the trailing 12-month period, it earned:
- An 86% gross profit margin.
- A 27% net income margin.
- A 35% return on equity.
These high profitability metrics indicate that First National Financial is good at turning its revenues into profit.
Respectable long-term growth
Although growth has been something of a weak spot for First National this year, its long-term growth track record has been pretty good. Over the last 10 years, it grew its net interest income (NII), net income, and earnings per share (EPS) at the following rates:
- NII: 8%.
- Net income: 9%.
- EPS: 9.5%.
For a company trading at just 12 times earnings, these metrics are pretty satisfactory.
Future prospects
Last but not least, we can gauge First National Financial’s future prospects by looking at its business model and region of operation.
First National’s business model is unique and lends itself well to consistent profitability. The company keeps costs low by not having branches, and it retains a unique clientele that banks aren’t willing to serve, which helps its competitive position.
First National operates exclusively in Canada. This has its pros and its cons. On the one hand, Canada’s housing affordability as measured by the national house price-to-income ratio is among the worst in the developed world. On the other hand, Canadian mortgages are recourse mortgages, meaning that banks can go after the borrower’s assets in the event of default. Overall, Canada is considered to be a good market for banking and related services.
Foolish takeaway on First National Financial
The bottom line on First National Financial is that it’s a fairly cheap stock with a high dividend yield and a good business model. It should fare pretty well over the long haul.
