This 7.5% Monthly Dividend Stock Could Be a TFSA Investor’s Dream

Firm Capital’s 7.5% monthly yield looks tempting, but the real test is whether its big manufactured-home deal finally strengthens distribution coverage.

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published August 6, 10:00 am EDT

| More on: FCD.UN

Key Points

Firm Capital just bought into 10 manufactured-home communities, aiming for steadier rent and about 4% higher AFFO.
The REIT pays monthly and yields around 7.5%, with units trading below reported net asset value.
Coverage is still tight and debt is rising, so the distribution depends on smooth execution and refinancing.

A dream income investment should send cash regularly, protect that cash with real assets, and leave room for growth. It shouldn’t require investors to spend every earnings season wondering whether the next payment has quietly packed a suitcase. That makes a high yield useful, although only when the business underneath can carry it.

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Getting started

A Tax-Free Savings Account (TFSA) makes those payments considerably more powerful. Dividends, distributions, and capital gains earned inside a TFSA can grow tax-free, while withdrawals are also tax-free. Those withdrawals generally return as new contribution room the following calendar year.

The 2026 TFSA dollar limit is $7,000, although unused room from earlier years carries forward. Investors should confirm their personal room before contributing, since the Canada Revenue Agency charges a 1% monthly tax on excess contributions.

Monthly payments can make reinvestment or household budgeting easier. Frequency alone doesn’t make a distribution safe, however. Investors still need growing cash flow, manageable debt, high occupancy, and a payout ratio that isn’t balancing on one toe. One smaller Canadian real estate investment trust (REIT) now offers an interesting combination of income and expansion.

FCD

Firm Capital Property Trust (TSX: FCD.UN) owns and co-owns grocery-anchored retail, industrial, apartment, and manufactured-home properties. These assets collect rent from tenants, while Firm Capital stock distributes part of the resulting cash flow to shareholders every month.

The newest acquisition gives that portfolio considerably more living space. Firm Capital stock recently closed the purchase of 50% interests in 10 manufactured-home communities containing 1,649 sites across Alberta and Saskatchewan. The entire portfolio cost $218 million, with Firm Capital stock investing through its SunPark joint venture.

Manufactured-home communities can produce defensive income because moving an entire home is rather more complicated than changing apartments. The properties also include 79 vacant sites and room for another 92, providing opportunities to increase rent without purchasing additional communities.

Numbers don’t lie

Management expects the larger transaction to add approximately 4% to annual adjusted funds from operations (AFFO), the cash-earnings measure commonly used by REITs. It also makes apartments and manufactured housing approximately 30% of pro forma net operating income, reducing Firm Capital stock’s dependence on commercial properties.

Firm Capital stock pays $0.04333 per unit monthly, or $0.52 annually. At a recent unit price of approximately $6.90, that creates a 7.5% yield. Investors searching for monthly dividend stocks could turn a $7,000 investment into the following income stream.

COMPANY	RECENT PRICE	NUMBER OF SHARES	ANNUAL DIVIDEND	ANNUAL TOTAL PAYOUT	FREQUENCY	TOTAL INVESTMENT
FCD.UN	$6.90	1,014	$0.52	$527.28	Monthly	$6,996.60

That position could produce approximately $43.94 per month, with $3.40 left uninvested. The units also trade approximately 14% below the $7.98 net asset value reported for the first quarter, providing a modest valuation cushion.

The distribution isn’t fully comfortable yet. First-quarter AFFO per unit increased by 10%, but the payout ratio remained at 101%. The acquisition could improve coverage, although it also lifts pro forma debt to approximately 58% of gross book value from 49.8%.

Foolish takeaway

Higher refinancing costs, weaker occupancy, acquisition problems, or slower rent growth could pressure the distribution, so investors need to watch for that. Firm Capital stock is also a smaller REIT with thinner trading volume, so investors shouldn’t make it their entire portfolio.

Second-quarter results expected in August should provide the first closer look at coverage and acquisition progress. If the new communities lift AFFO as planned, today’s high monthly income could gradually become sturdier, turning 12 tax-free payments into a dream worth keeping.