Investing in dividend stocks can be a rewarding strategy, especially when market fluctuations present attractive entry points. Two such opportunities on the TSX are Atrium Mortgage Investment (TSX:AI) and A&W Revenue Royalties Income Fund (TSX:AW.UN). With recent declines of 12% and 17%, respectively, these stocks offer compelling prospects for dividend-seeking investors.
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Atrium
Atrium Mortgage Investment, a leading non-bank lender, demonstrated resilience in its financial performance. In the third quarter of 2024, Atrium reported earnings per share of $0.26, consistent with the previous quarter and an improvement over the prior year’s $0.25. This stability reflects the company’s prudent management and strategic focus on first mortgages, which now constitute a record 97.3% of its portfolio.
Moreover, Atrium has shown a commitment to rewarding shareholders. The dividend stock recently announced a 3.3% increase in its annual dividend rate, raising it to $0.93 per share, payable monthly. This marks the second dividend increase in 2024, underscoring Atrium’s confidence in its financial health and future prospects.
Despite a slight decrease in the weighted average interest rate of its mortgage portfolio from 10.93% to 10.52% due to rate cuts by the Bank of Canada and a focus on lower-risk loans, Atrium’s portfolio reached a record $926.3 million. This growth indicates the successful execution of its strategic plan and an ability to capitalize on high-quality opportunities arising from reduced activity by institutional lenders.
A&W
A&W Revenue Royalties Income Fund, which holds the trademarks for A&W restaurants in Canada, has faced some challenges. In the third quarter of 2024, the fund reported a slight increase in royalty income to $13.74 million, up from $13.71 million in the same period the previous year. However, same-store sales growth was down 1.0%. Attributed to decreased guest counts amid economic pressures like increased interest rates and inflation.
Despite these challenges, A&W has been proactive in addressing consumer needs by focusing on value and affordability. The introduction of successful product innovations, such as the Masala veggie burger and peri peri lineup, demonstrates the company’s ability to appeal to diverse demographics and adapt to changing market conditions.
Furthermore, A&W has undertaken strategic initiatives to enhance its market position. The fund and A&W Food Services entered a combination agreement in July 2024 to form a new publicly traded company. Aiming to create a growth-focused quick-service restaurant entity. This transaction, overwhelmingly approved by unitholders, is expected to provide greater flexibility and potential for expansion. While the payout ratio for A&W increased to 101.4% in the third quarter (Q3) of 2024 from 81.3% in Q3 2023, indicating a strain on cash flow due to transaction-related costs, the fund maintained its monthly distributions at $0.48 per unit, reflecting a commitment to delivering consistent returns to investors.
Bottom line
Considering the recent price declines, both AI and AW.UN present intriguing opportunities for dividend stock investors. Atrium’s stable earnings, dividend increases, and strategic growth in its mortgage portfolio suggest a solid foundation for future performance. Meanwhile, A&W’s strategic initiatives and product innovations indicate potential for recovery and growth despite current economic challenges.
