10% Yield: Is This TSX Small-Cap a Buy for its Dividend?

Timbercreek Financial is a high dividend TSX stock with a monthly payout, which trades at a reasonable valuation.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Interest rate hikes in the last two years have dragged the share prices of lending companies significantly lower. Investors are worried that higher interest rates will lead to tepid demand for loans as well as increase default rates, negatively impacting sales and profit margins for companies in this segment.

But the drawdown in valuations has driven the dividend yields of lending companies higher, making them attractive to income-seeking investors.

Created with Highcharts 11.4.3Timbercreek Financial PriceZoom1M3M6MYTD1Y5Y10YALL17 Jan 201816 Jan 2024Zoom ▾20192020202120222023202420202020202220220www.fool.ca

One such small-cap TSX stock is Timbercreek Financial (TSX:TF), which trades almost 32% below its all-time high. However, it also offers you a dividend yield of 9.9%, given an annual payout of $0.69 per share. Let’s see if you should buy this TSX dividend stock for its high yield right now.

An overview of Timbercreek Financial stock

Valued at $582 million by market cap, Timbercreek Financial is a non-bank lender that provides short-duration structured financing solutions to commercial real estate investors. The company invests directly in a diversified portfolio of mortgage loans secured by income-producing commercial real estate, which includes multi-residential, office, and retail buildings in urban Canadian markets.

Timbercreek Financial fulfills demand from an underserved sector of the mortgage market. The company explained, “This segment of the Canadian borrower market is typically under-serviced by commercial banks that are reluctant to dedicate resources to these smaller, shorter-term mortgage investments and cannot typically provide the structure required to meet the borrower’s needs.”

Timbercreek’s borrowers are commercial real estate investors who look to finance capital improvements or redevelopment of a property. These investments in commercial mortgages can enhance the performance and diversification of fixed-income portfolios. With a strong track record, Timbercreek offers investors an opportunity to earn a steady stream of passive income, given it has a monthly distribution of $0.0525 per share.

How did Timbercreek Financial perform in Q3?

With more than $15 billion in mortgage originations in North America and Europe, Timbercreek Financial ended the third quarter (Q3) with over $3 billion in assets under management. It has 105 mortgage investments with an average net mortgage investment size of $10.5 million and a weighted average loan-to-value ratio of 67%.

In Q3 of 2023, Timbercreek Financial reported net investment income of $30.3 million, up from $30 million in the year-ago period. Its distributable income stood at $16.8 million, or $0.20 per share, indicating a payout ratio of 87.4%, given its quarterly dividends were $0.17 per share.

Timbercreek Financial’s new mortgage advances were $58.2 million, while advances on existing mortgages were $17.5 million. It also received $61.9 million in net mortgage repayments. The company emphasized mortgage repayment activity was low in Q3 due to sector-wide slowness.

Is the TSX stock undervalued?

Analysts tracking Timbercreek Financial expect its sales to rise by 11.6% to $124 million, while adjusted earnings are forecast to grow by 14.5% to $0.79 per share. So, priced at 8.8 times forward earnings, Timbercreek Financial stock is quite cheap, given its high dividend yield.

Analysts remain bullish and expect Timbercreek stock to gain over 25% in the next 12 months. After adjusting for dividends, total returns may be closer to 35%.

Should you invest $1,000 in Cineplex right now?

Before you buy stock in Cineplex, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Cineplex wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

How to Turn Your TFSA Into a Gold Mine Starting With Only $10,000

It doesn't have to be complicated or scary. You can turn any portfolio into a major gold mine.

Read more »

ways to boost income
Dividend Stocks

Passive Income: How to Invest Your TFSA Limit in 2025

This TFSA strategy can reduce risk and boost yield.

Read more »

coins jump into piggy bank
Dividend Stocks

Here’s the Average Canadian TFSA and RRSP at Age 25

Are you not meeting the average? Then check out this ETF that can bridge the gap.

Read more »

Person holding a smartphone with a stock chart on screen
Dividend Stocks

3 Canadian Multi-Sector Stocks to Buy and Hold for Built-In Diversification

Here are three of the best dividend-paying Canadian stocks with built-in diversification.

Read more »

grow money, wealth build
Dividend Stocks

Why I’d Allocate $15,000 to Canadian Stocks Now for Building Generational Wealth

With $15,000, a thoughtful allocation across small-, mid-, and large-cap Canadian stocks could offer the right blend of growth, income,…

Read more »

Caution, careful
Dividend Stocks

3 Major Red Flags the CRA Is Watching for All TFSA Holders

The CRA is watching, so make sure you're investing well and avoiding these problems.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 2 Top TSX Stocks With Decades of Dividend Growth

These stocks have great track records of delivering dividend growth in challenging economic conditions.

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

TFSA: Invest $15,000 in This TSX Stock and Create $884 in Annual Passive Income

This TSX stock certainly has quite the long-term outlook -- one that could create passive income now and decades to…

Read more »