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Got $1,000? Buy This High-Yield Dividend Stock Today

Adam Othman
·3 mins read
Various Canadian dollars in gray pants pocket
Various Canadian dollars in gray pants pocket

High-yield dividend stocks, especially those who have the earnings to justify the robustness of their dividends (rather than dividends seeming like a ploy to hold on to investors), are relatively rare in a healthy economy. But a market crash has the power to change that and convert many decent-yield stocks into high-yield ones — and ripe for the taking.

But with high-yield comes a high degree of suspicion regarding the sustainability of its yield or not. It’s mainly a concern with Dividend Aristocrats because they don’t just have to sustain their dividends; they also have to increase their dividends. And doing that when revenues are shrinking is almost impossible to do for more than a few consecutive quarters.

If you have $1,000 to invest and you want to invest in a high-yield stock, it might be a good idea to seek a bit of growth as well. One stock that combines both these traits is Atrium Mortgage (TSX:AI).

The company

Atrium Mortgage is a $463 million market cap company that offers short-term mortgage loans to lenders that are unable to reach out to banks and conventional lenders for their property loans. The company handles requests like land assembly, bridge financing, and infill constructions. Because of the nature of the loans, the company can charge relatively higher interest rates and furnish loans for just one or two-year terms.

As a mortgage insurance corporation, the company is liable to invest 50% of its capital in residential mortgages only. It has to distribute all of its earnings (which accounts for a decent dividend payout). The company has a conservative loan policy, especially for a company that markets itself as a flexible mortgage lender. Still, it caters to a relatively untapped borrower pool in the real estate market.

The stock

As a high yield stock, Atrium isn’t offering a double-digit yield, but it’s pretty close. The company is currently offering a 9% yield. This means your $1,000 investment will earn you $90 a month, and the company will return your capital in under 11 years (through dividends only).

The dividend yield isn’t the only reason to choose this stock, however. The company offers a slow but steady capital growth (or did before the crash). Still, its dividend-adjusted compound annual growth rate (CAGR) in the past five years is decent enough at 7%.

The company has a strong balance sheet with total assets of more than three times the liabilities. Its second-quarter revenues didn’t take a strong hit compared to the second quarter last year. Net income actually grew and diluted EPS was reduced by a single point. The stock is currently trading for $10.9 per share at writing, a 26% discount from its pre-pandemic values.

Foolish takeaway

One of the risk with investing in this company lies in the housing market. If we see mortgage defaults rising at an unprecedented rate, the company might be in trouble. But if the company’s underwriters take the right precautions, and spread out the risk, the company might just survive the upcoming housing bubble.

The post Got $1,000? Buy This High-Yield Dividend Stock Today appeared first on The Motley Fool Canada.

More reading

Fool contributor Adam Othman has no position in any of the stocks mentioned.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2020