Many dividend investors avoid high yields, concerned the payout is about to get slashed. Nobody wants to be left holding a stock when that happens.
But there are a number of stocks with great dividends that can easily afford their yields. First National Financial Corp (TSX:FN) is one of them.
First National is one of Canada’s largest mortgage lenders, with nearly $100 billion in mortgages under administration. The company has no branches; rather, it works with mortgage brokers and then originates loans out of five regional offices across Canada. This allows it to keep rates low, savings it passes onto customers.
Virtually all of its mortgages are insured by third party default insurers, meaning First National has no risk if a borrower stops paying.
Growth has been outstanding over the last few years. In 2012 the company generated $628.6 million worth of revenue and earned $1.76 per share. Revenue should surpass $1 billion in 2017 with analysts expecting the company to earn $2.98 per share. This puts shares at less than 10 times forward earnings.
New mortgage rules may start to slow down Canada’s housing market, but First National is well prepared to compete in such a world. It will continue to grow as brokers gain popularity, and the company is already well known for giving customers competitive rates. It also has thousands of customers it can market to if needed.
First National pays investors a dividend of 14.17 cents per share each month, good enough for a 5.9% yield. The payout ratio is just 62% of trailing earnings, which is quite good for a company yielding 5.9%. You don’t have to worry about this dividend.
