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Monthly Dividend Stock in Focus: First National Financial Corporation


Updated on October 16th, 2024 by Felix Martinez

Investors seeking a dependable and consistent source of income may find it advantageous to invest in companies that distribute monthly dividends. This can greatly enhance predictability and reduce the uncertainty associated with investing in equities. Thus, monthly dividend stocks can be particularly useful during the highly volatile market environment.

That said, there are just 77 companies that currently offer a monthly dividend payment, which can severely limit the investor’s options. You can see all 77 monthly dividend paying names here.

You can download our full Excel spreadsheet of all monthly dividend stocks (along with metrics that matter, like dividend yield and payout ratio) by clicking on the link below:

 

Click here to instantly download your free spreadsheet of all 77 monthly dividend stocks now, along with important investing metrics.

One name that we have not yet reviewed is First National Financial Corporation (FNLIF), a Canadian-based company in the financial services industry. Currently, the stock has a yield of 6.2%, which is more than four times higher than the yield of the S&P 500 Index. Given that the company pays out dividends on a monthly basis, it may be a fitting pick for income-oriented investors.

This article will evaluate the company, its business model, and its distribution to see if First National Financial Corporation could be a good candidate for purchase.

Business Overview

Over the last three decades, First National has grown to become a recognized and respected leader in real estate financing. Being Canada’s biggest non-bank issuer of single-family residential mortgages, the company provides a comprehensive array of mortgage solutions tailored to suit the unique requirements, lifestyle, and financial objectives of each client.

Additionally, First National offers commercial mortgages, attributing its triumph to its team of experts who are among the most respected and renowned in the industry.

The company reported its second-quarter results for 2024, highlighting key developments in its mortgage administration and earnings. The company’s Mortgages Under Administration (MUA) increased by 8% to a record $148.2 billion, reflecting growth in both its single-family and commercial mortgage portfolios. However, the company faced a 14% decrease in pre-FMV income, falling to $77.5 million, and net income also declined by 39% to $54.1 million, compared to $89.2 million a year ago, due to increased competition and tighter market conditions.

The company noted that despite challenges such as lower single-family mortgage origination and narrower spreads, commercial segment origination grew by 35% to $5.0 billion, demonstrating strong demand for multi-unit mortgage products. Revenue for the second quarter rose by 2% to $538.4 million, driven by growth in mortgage servicing income and net interest revenue on securitized mortgages. However, placement fees and deferred gains saw declines due to a shift in market activity and competition from bank lenders offering lower rates and higher incentives.

Looking ahead, First National expects lower single-family mortgage volumes to persist, while maintaining steady performance in the commercial segment. The company remains confident in its long-standing relationships with brokers and institutional investors, its robust securitization portfolio, and its ability to generate income from its servicing and securitized mortgage portfolios. FNFC is well-positioned to navigate the competitive landscape and leverage its diversified funding sources to sustain profitability in the future.

Source: Annual Report

Growth Prospects

To grow its revenues and earnings, First National can primarily rely on two factors – expanding its mortgage portfolio and increasing its interest income.

Assessing First National’s growth prospects is somewhat challenging these days due to the highly uncertain nature of the evolving interest rates. At first glance, the company’s revenues and income rose last year as it was able to earn more on its existing mortgage portfolio.

That said, rising interest rates are generally not beneficial for mortgage issuers for a few reasons:

  1. First, when interest rates rise, it becomes more expensive for potential buyers to take out mortgages, resulting in lower demand for mortgages. We saw this happening in the company’s 2022 results.
  2. Second, First National could experience a decrease in profitability, as higher interest rates can also lead to higher borrowing costs for the company. This wasn’t the case last year, but it could be once the company has to refinance its own debt.
  3. Third, as interest rates rise, some borrowers may find it difficult to make their mortgage payments, which can result in an increase in the number of defaults. This, in turn, can cause mortgage issuers to suffer losses as they may have to repossess and sell properties at a loss.

Therefore, despite last year’s improving results, it’s important to note that if interest rates remain high, the company’s profitability may not be as strong in the upcoming years.

Overall, the company’s earnings track record is quite volatile, which can be attributed to various factors that have the potential to impact its profitability depending on the prevailing macroeconomic conditions significantly. Still, First National’s earnings tend to trend upward over the long term.

Dividend Analysis

First National is currently yielding 6.2%, with the company boasting a remarkable track record of paying dividends. In fact, First National is a member of the S&P/TSX Canadian Dividend Aristocrats Index.

Although the dividend decreased by approximately 20% in 2010 due to the adverse impact of the Great Financial Crises on the real estate mortgage market, it has grown steadily every year from 2011 onward.

Specifically, the company’s dividend has grown at a compound annual growth rate of 6.4% over the past decade, mirroring its earnings-per-share growth over the same period.

Source: Investor Relations

Moving forward, we believe that First National may slow down the pace at which it grows its dividend. This is because the current payout ratio, at 64%, already appears relatively high, and profitability could decline in the coming years due to higher interest rates.

Therefore, the company is unlikely to take the risk of pushing the payout ratio to a level that could jeopardize its financial stability. The most recent dividend increase of just 2.0% supports this rationale.

Final Thoughts

First National is likely to experience profitability headwinds in the coming years, especially if interest rates remain elevated. While higher interest income on its existing mortgage portfolio could somewhat offset the lack of new originations, the company’s own financial expenses are likely to pressure its bottom line.

That said, for investors seeking a steady stream of monthly income and an above-average yield, First National may be an attractive option. Despite operating in a challenging environment, the company has maintained a reasonable payout ratio and even slightly increased its dividend last year, indicating its commitment to rewarding its shareholders.

As such, income-oriented investors are likely to find value in the stock despite any short-term financial setbacks due to higher interest rates.

Don’t miss the resources below for more monthly dividend stock investing research.

And see the resources below for more compelling investment ideas for dividend growth stocks and/or high-yield investment securities.

Thanks for reading this article. Please send any feedback, corrections, or questions to support@suredividend.com.



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