It is no secret that right now is the best time ever to get into a mortgage. Rates across the world have never been lower and even in Europe you are able to get a negative interest rate mortgage, I still can’t believe there is such a thing. The only problem? Housing prices are doing the opposite, every market is at an all time high for prices. This makes sense though as to why mortgage rates are so low, no one would be able to afford a house if rates went up and in that case these financial institutions would be missing out on a boat load of money.
I will admit that I have invested in a mortgage company in the past. I held onto First National Financial(FN) for a little while a few years ago when they were just under $30 a share. The only reason why I actually picked them is because that is who my mortgage is with. One thing Colby always says is “invest in what you know”. Did you know that they were the second biggest mortgage lender in Canada? That is right, even bigger then 4 out of 5 of the big banks. They are actually the biggest non bank mortgage lender in Canada, that is pretty impressive. Not to mention they pay a monthly dividend which is a nice little touch as well.
Want to hear some good news? There is more then just 1 mortgage company out there that you can invest in. I’m only going to talk about a few of the biggest which are First National Financial(FN), MCAN Mortgage Corporation(MKP) and Atrium Mortgage Investment Corp(AI). These are the biggest and some of the biggest non-bank mortgage lenders in Canada. You might be wondering why this would be a better investment then the big 5 banks or just banks in general. To start off they don’t need to have the overhead that the big banks have, every bank has way more locations or buildings that add up to extra costs. Banks needs to diversify and offer way more services then just a mortgage company who can easily rely on mortgages to make big margins. Mortgage companies can offer lower rates then the big banks which makes them more appealing, don’t believe me? look up right now who has the best mortgage rates and I bet that its not a big bank.
Now, something that Colby and I don’t really see eye to eye on is a companies dividend. When I invest in my RRSP I try to keep my companies between and 5%-7% Yield. Its not a must but given the companies and the very long term investment I have in them it is generally what I get anyways. Looking at the big banks(or most banks really) they range from a 3%-5% yield which is still pretty good. The 4 mortgage companies I listed off range from 4.5%-7.8%. If you ask Colby, he will tell you that is way to high haha. Don’t get me wrong, I understand where he is coming from but I feel like mortgage companies operate similar REIT’s. They just make so much money though that as an investor I’m ok with taking 5%-10% yearly growth(which is to low for Colby) along with a 8%ish dividend. But I would only really worry about this in my RRSP and not so much my TFSA because i’m looking for compound return and not risky penny stocks that blow up my TFSA haha.
Dividends though are not the only reason to invest in a mortgage company though. They are a very safe and practical investment. Look at interest rates, they just keep going down and housing prices just keep going up. The interest rates being so low is great though for mortgage companies because its very attractive to first time home buyers. I sure wish I could have got 1.59% on my very first mortgage instead of the 3.19% I got 7 years ago. That is crazy, its gone down more then half in 7 years. In the 80’s and early 90’s it was up to 18% and in the double digits. The only reason you could afford a rate like that was because your house was only $80,000 but that generation was only invested in their house and a house in the 80-90s that was $80,000 then is worth 5 times that now.
The only negatives here is for people that are looking to getting into a mortgage and having interest rates go up. I know that TD just recently increased their 5 year fixed rate and that interest rates are supposed to go up. This may be bad for consumers but its great for mortgage companies and lenders. I mean, who would say no to more money right? The only other down side to higher interest rates is bond yields going up and becoming more…appealing, thus taking investments away from the stock market and causing a drop in share prices. The only other good side is being able to get your stocks at a discount. Who doesn’t like averaging down am I right? Lets take a look at those 3 companies I mentioned earlier.
First National Financial(FN)-$45.52/Share, $2.72 Billion Market Cap, 2.9 EPS, 12.9 P/E(forward), $373.7 Million Q3 2020 Revenue, Dividend Yield of 4.6% and Dividend Payout Ratio of 50%(12 months trailing).
Atrium Mortgage Investment Corp(AI)-$12.85/Share, $544.1 Million Market Cap, 0.97 EPS, 13.0 P/E(forward), $16.4 Million Q4 2020 Revenue, Dividend Yield of 7% and Dividend Payout Ratio of 97% (12 months trailing).
MCAN Mortgage Corporation(MKP)-$17.54/Share, $425.6 Million Market Cap, 1.27 EPS, 12.2 P/E(forward), $41.6 Million Q3 2020 Revenue, Dividend Yield of 7.8% and Dividend Payout Ratio of 76%(12 months trailing).
Much like the big banks these companies are a fairly safe investment. They are so heavily regulated that its not even funny. They are doing their best and trying their hardest not to have another 2008 financial/housing crisis happen. It is pretty obvious right now since its a sellers market and we are coming out of a huge economic collapse(which hasn’t happened since 2008). Now that the market is bouncing back and more people are back to work I am going to be watching these guys even closer. More people will be buying houses again and these companies will see increased revenue soon enough, just make sure to keep your eye on interest rates.
That is all for today and remember everyone, invest in yourself first.
*Disclaimer, I currently do not hold any positions in the companies listed above and all share prices are as of market close March 2, 2021.