A four-figure portfolio won’t fund retirement by next Tuesday. Still, $1,000 can produce a surprisingly useful stream of cash when it’s placed in the right corner of the market. The trick is finding an 8%-plus yield that comes from actual earnings rather than financial wishful thinking.
Dividend yield simply divides the annual payment by the share price. That means a yield can rise because the dividend increased, the stock fell, or both. Investors screening Canadian dividend stocks should therefore look beyond the delicious headline number to payout coverage, debt, and the assets standing behind the payment.
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What to consider
Payment frequency deserves scrutiny. Monthly dividend stocks can make budgeting and reinvestment easier, but 12 payments aren’t automatically safer than four. A dividend covered by earnings and backed by carefully underwritten loans is far more attractive than a frequent payment running on hope.
The current interest-rate environment has created an interesting opening. The Bank of Canada held its policy rate at 2.25% in July, while saying economic growth should improve. Lower funding costs could help mortgage lenders, while borrowers who can’t obtain conventional bank financing continue paying higher rates for flexible private loans.
Mortgage investment corporations (MIC) sit directly in that gap. They pool investor money, lend it against real estate, and distribute most of the resulting income. The model can produce enormous yields, although investors are accepting property, borrower, and credit risk in return. Two lenders currently make that trade-off look particularly interesting.
AI
Atrium Mortgage Investment Corporation (TSX: AI) focuses primarily on residential and commercial mortgages in major Canadian cities. Its loan book is interested in collateral, with 96.9% of the portfolio invested in first mortgages at the end of the second quarter.
Atrium earned $0.24 per share during the quarter, covering the $0.23 paid in dividends. Its weighted average loan-to-value ratio was 62.5%, leaving a meaningful borrower-equity cushion if a loan runs into trouble. Management also expects the portfolio to exceed $900 million by year-end as its new Alberta office brings in additional business.
At a recent $11.62, the regular $0.93 annual dividend yields slightly more than 8%. The dividend stock trades at approximately 1.1 times the latest $10.99 book value, hardly a bargain-bin valuation, but reasonable for a lender covering its monthly payment.
TF
Timbercreek Financial (TSX: TF) provides shorter-term commercial real estate loans, often stepping into transactions traditional banks consider too complicated or time-sensitive. Approximately 94% of its mortgages were first mortgages last quarter, while 60% of the portfolio was secured by multi-family residential properties.
Second-quarter distributable income reached $14.6 million, covering the $14.3 million paid to shareholders. That produced a tight 97.7% payout ratio, yet management has already declared the $0.058 monthly dividend through December. At $6.23 per share, the dividend stock’s $0.69 annualized payment yields a whopping 11.1%.
Putting $1,000 to work
Splitting $1,000 approximately equally between the two stocks would produce an average of $7.93 in monthly income, or $95.19 annually.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | ANNUAL DIVIDEND | ANNUAL TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| AI | $11.62 | 43 | $0.93 | $39.99 | Monthly | $499.66 |
| TF | $6.23 | 80 | $0.69 | $55.20 | Monthly | $498.40 |
| TOTAL | — | 123 | — | $95.19 | Monthly | $998.06 |
But don’t ignore the risks. These dividend stocks belong to the same industry, so this isn’t a properly diversified portfolio on its own. Property values could fall, borrowers could default, and lower interest rates could compress lending spreads. Timbercreek also recorded $6.7 million in expected credit losses last quarter, showing exactly why an 11% yield doesn’t arrive gift-wrapped.
Bottom line
Atrium offers the stronger coverage, while Timbercreek provides the larger income stream. Together, they turn almost the entire $1,000 into a 9.5%-yielding monthly paycheque. Reinvesting that income won’t feel dramatic at first, yet every new share adds another tiny lender to the payroll.
