A 10% yield is usually enough to make me take a closer look at a dividend stock’s fundamentals. Not because I expect easy money, but because yields that high almost always come with a catch. Sometimes it’s a struggling business. Sometimes it’s a dividend that’s living on borrowed time.
Sometimes the market’s view of a company is much more negative than its underlying business performance. That’s why Timbercreek Financial (TSX: TF) recently caught my attention. The stock has been under pressure, yet the business continues to generate cash and grow where it matters. Let’s see whether this monthly payer is worth a closer look.
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The mortgage book is moving in the right direction
Currently, TF stock trades at $6.50 per share with a market cap of $538 million. The stock price has dived by nearly 15% over the last year, which has raised its annualized dividend yield to 10.6%, paid monthly. This yield makes this stock tough to ignore for investors like me who care more about income than short-term price momentum.
What keeps me interested is that the business is not slowing down even as investor sentiment remains cautious. In the first quarter, Timbercreek advanced $224.2 million in new and existing net mortgages, lifting its net mortgage portfolio to $1.2 billion. That was up around 15% year-over-year (YoY) with the help of stronger origination activity and continued progress in resolving older staged loans.
The company has also been redeploying capital into higher-quality, income-producing real estate loans, with a clear focus on multi-residential opportunities. That move supports portfolio growth and underwriting discipline at a time when commercial real estate lenders still need to stay selective.
The cash flow picture is still doing the heavy lifting
In the latest quarter, Timbercreek’s income came in at $25.1 million, while distributable income reached $14.5 million. Its net income and comprehensive income were $0.13 per share, and the company still declared $14.3 million of dividends, or $0.17 per share.
Those numbers were not flawless. Timbercreek paid out almost all of its distributable income as dividends, and its dividend was higher than its reported earnings for the quarter. The company also recorded $3.7 million in expected credit losses after selling two troubled office and retail mortgages. Even so, the dividend is still being backed by the cash the business generates, which is what income investors really want to see.
The average interest rate across its mortgage portfolio in the March quarter also slipped to 7.7% from 8.7% a year ago as older, higher-rate loans matured and interest rates declined. Still, nearly 90% of its loans have variable rates with minimum rate protections, helping cushion the impact if borrowing conditions remain uncertain.
Why this stock still looks attractive
At the end of the March quarter, Timbercreek’s multi-residential loans represented 59.7% of its portfolio, while retail, industrial, office, and improved land made up much smaller slices. That tilt toward income-producing assets should matter because it gives the company exposure to property types that could still generate cash flow in a choppier market.
For an income stock with a 10.6% yield, that mix of portfolio growth and active capital recycling is encouraging. While I won’t call Timbercreek stock risk-free, I still think Timbercreek stock remains a smart monthly income pick right now, especially for investors who want monthly cash flow. If its origination momentum holds, today’s payout could look even more compelling in the years ahead.
