10% Yield: Is This TSX Small-Cap Worth Buying for Its Dividend?

In the ever-changing landscape of the Toronto Stock Exchange (TSX), investors are actively exploring resilient opportunities, particularly in light of interest rate hikes affecting lending companies. Amidst these concerns, a noteworthy TSX small-cap stock, Timbercreek Financial (TSX:TF), shines, offering a compelling case with its distinctive positioning and a high dividend yield. Let's delve into the details of Timbercreek Financial and assess whether it deserves a place in your investment portfolio.

Timbercreek Financial: A High-Dividend TSX Stock

Valuation and Yield

Timbercreek Financial, trading nearly 32% below its all-time high, offers investors more than a discounted stock. With a dividend yield of 9.9%, supported by an annual payout of $0.69 per share, it becomes an enticing prospect for income-seeking investors navigating the complexities of the current market.

Business Overview

At a market cap of $582 million, Timbercreek Financial positions itself as a non-bank lender specializing in short-duration structured financing solutions for commercial real estate investors. The company's direct investment in a diversified portfolio of mortgage loans, secured by income-producing commercial real estate, spans multi-residential, office, and retail buildings in urban Canadian markets.

Addressing Market Gaps

Timbercreek Financial strategically addresses an underserved segment of the mortgage market. Focused on borrowers typically overlooked by commercial banks, the company provides tailored solutions for smaller, shorter-term mortgage investments. This proactive approach positions Timbercreek to meet the specific needs of commercial real estate investors looking for financing in capital improvements or redevelopment projects.

Q3 Performance Insights

Financial Metrics

In the third quarter of 2023, Timbercreek Financial demonstrated resilience with over $15 billion in mortgage originations in North America and Europe. The company managed assets exceeding $3 billion, reflecting its robust market presence.

Income and Distribution

Net investment income for Q3 reached $30.3 million, showcasing stability compared to the previous year. Distributable income stood at $16.8 million, translating to $0.20 per share, with a reasonable payout ratio of 87.4%. The monthly distribution of $0.0525 per share contributes to Timbercreek's appeal as a reliable income generator.

Mortgage Advances and Repayments

In Q3, Timbercreek Financial reported new mortgage advances of $58.2 million, complemented by advances on existing mortgages at $17.5 million. The company also experienced a net mortgage repayment of $61.9 million, noting sector-wide slowness impacting mortgage repayment activity.

Valuation and Analyst Projections

Undervalued Opportunity

Priced at 8.8 times forward earnings, Timbercreek Financial appears undervalued, especially when considering its substantial dividend yield. Analysts forecast an 11.6% rise in sales to $124 million and a 14.5% growth in adjusted earnings to $0.79 per share.

Analyst Confidence

Bullish sentiments prevail among analysts, predicting a more than 25% gain in Timbercreek stock over the next 12 months. Factoring in dividends, the total returns could potentially reach an impressive 35%.

Conclusion: Timbercreek Financial - A TSX Gem

In conclusion, Timbercreek Financial emerges as a high-dividend TSX stock with a unique value proposition. Its strategic focus on an underserved market segment, coupled with robust financial performance and an attractive yield, positions it as a noteworthy consideration for investors seeking income and potential growth. As the TSX landscape evolves, Timbercreek Financial stands ready to unlock opportunities for those navigating the intricacies of the Canadian equity market.