Timbercreek Financial’s Double-Digit Yield: Is the Monthly Dividend Safe?

If you have been an avid dividend investor, the stock market has taught a lesson about high dividend yields. Anything too good to be true will not last. A ticking time bomb is hidden in the cash flows. Timbercreek Financial’s (TSX: TF) 16% dividend yield shows time is ticking. Investors may expect a dividend cut anytime. Thus, the stock saw a sell-off, pulling the share price down 18% after disappointing third-quarter 2026 earnings.

Timbercreek Financial’s 16% yield too good to be true

Can a short-term mortgage lender earning a 7.5% weighted average interest rate on its mortgage portfolio pay a 16% yield to shareholders?

The dividend it pays is funded from net interest income it earns from borrowers. And this interest income is showing warning signs. Timbercreek Financial increased its expected credit loss (ECL) to $40.2 million in the third quarter of 2026, more than double the 2025 ECL of $17.9 million. A higher ECL reduces the interest income from the mortgage portfolio. Timbercreek Financial has already used 97.9% of its credit facility, reducing its ability to give more loans. On top of that, more loans going into stages 2 and 3 show heightened credit risk.

All this has been stressing its distributable income since the start of 2025. While the company highlights its stable monthly dividend of $0.058 per share, it is burning a hole in its own pockets to pay this dividend.

The dividend payout ratio has been above 95% since the first quarter of 2025 and has crossed 100% twice in seven quarters: in the third quarter of 2025 (101.4%) and in the third quarter of 2026 (101.9%). The distributable income does not take into consideration ECL. It means if any of the loans in the ECL default, Timbercreek may have to pay dividends from its own pockets.

How big are its pockets? With just $377,000 in cash, there isn’t enough financial flexibility to keep funding dividends.

Is Timbercreek Financial’s monthly dividend safe?

With the Bank of Canada increasing interest rates for the first time in three years, there were hopes of earning higher interest income. However, the rising credit risk offsets the positive growth in new mortgages. If the ECL does not reduce significantly in the fourth quarter, the lender might have to slash dividends for the first time in 10 years.

It is better for investors to avoid the 16% yield, as the lender might not only cut dividends but also pause them if things worsen. Slate Grocery REIT suspended distributions when its payout ratio surged to an unsustainable level of 113%.

Buy this stock instead for safe monthly dividends

If you seek higher yields and monthly payouts, consider companies with lower leverage and payout ratios. CT REIT (TSX: CRT.UN) is at a sweet spot with a 72.7% payout ratio. The REIT reduced its indebtedness ratio to 38.7% as of September 30, 2026, from 39.8% a year ago.

The REIT has low credit risk, as more than 90% of its property is occupied by its parent, Canadian Tire, which has never missed a rent payment in more than a decade. The rent is safe and hence are CT REIT’s distributions. Its 5.4% yield might look unattractive against Timbercreek’s double-digit yield; the trade-off of payout safety in volatile times makes CT REIT a better dividend investment than Timbercreek.

CT REIT also offers a 3% bonus on the dividend amount reinvested in its dividend reinvestment plan (DRIP), making it an attractive long-term investment.

A $1,000 investment in Timbercreek Financial will earn you $13.51 per month, till the company cuts dividends. A similar investment in CT REIT will earn you $4.5 per month, which will grow by 3% every July.