Is this TSX dividend stock a good buy right now?
Timbercreek Financial, with a market capitalization of $563 million, operates in the Canadian commercial real estate lending segment. It offers shorter-term structured mortgages to sophisticated real estate investors who need speed and flexibility at the lowest possible rates.
Timbercreek is a Toronto-based mortgage investment company focused exclusively on loans secured by stabilized, income-producing properties, including multi-residential buildings, retail centers and office space in urban markets across Canada.
The company underwrites deals where consistent rental income from tenants provides cash flow for servicing debt, reducing the risk of default compared to development or speculative projects.
Timbercreek fills the gaps left by major Canadian financial institutions that cannot justify devoting resources to smaller mortgage investments, which typically have terms of one to five years.
The typical Timbercreek borrower is an experienced real estate investor seeking bridge financing for real estate purchases, capital improvements or repositioning strategies prior to permanent refinancing.
These customers accept higher interest rates and origination fees in exchange for quick execution of time-sensitive opportunities, early repayment options without penalties, and the ability to collateralize multiple properties within a single loan structure.
Timbercreek Financial maintains a diversified portfolio of structured mortgage loans through rigorous underwriting standards, active asset management and disciplined governance.
Is TSX stock undervalued?
Timbercreek Financial posted mixed third-quarter results as transaction delays and an unexpected large redemption offset improving market fundamentals that should drive continued activity, CEO Blair Tamblyn said.
The mortgage investment company made $131 million in new loans this quarter, all focused on the low loan-to-value ratio of multifamily properties. These new financings were offset by a $191 million repayment, including an $83 million payout in September that management had not expected. The portfolio ended the quarter at $1.05 billion, down $60 million from the prior period, despite growing about $50 million this year.
While net investment income remained stable at $25.4 million, distributable income per share fell to $0.17 from $0.18 last year. The payout ratio was above the target range as limited investment activity limited gains.
Management expects full-year results to be within target parameters, with more substantial volumes in the fourth quarter and more than $200 million already funded or committed this quarter.
Timbercreek reported $5.9 million in expected credit losses due to revaluations of two troubled loans. Chief Investment Officer Scott Rowland said the company has paid down nearly $19 million in phase-two loans since the last earnings call and expects further progress in returning this portion of the portfolio to historical norms.
Redeploying capital from non-performing assets into new loans generating yields of around 11% should significantly support revenue growth.
The weighted average loan-to-value ratio increased to 67.9%, as Timbercreek tends to reset commercial real estate valuations with lower interest rates, creating favorable conditions for a new cycle.
The portfolio’s weighted average interest rate fell to 8.3% from 9.3% a year earlier, closer to the long-term average of about 8%. Rate floors on more than 85% of floating rate loans provide downside protection, while 93% of floor rate loans are currently at their floors.
Timbercreek increased its credit facility to $600 million from previous levels, improving the economics with spreads of 25 basis points, while adding two new banks to the syndicate. Management believes that existing debt capacity supports portfolio growth to $1.2 billion or $1.3 billion before additional capital increases are required.
The silly takeaway
Timbercreek is a TSX-listed stock that pays an annual dividend of $0.69 per share, yielding more than 10%. Analysts who follow the dividend stocks predict earnings will grow from $0.56 per share in 2024 to $0.70 per share in 2027.
In addition, distributable cash earnings should improve from $0.73 per share in 2025 to $0.76 per share. With an improving payout ratio and a tasty dividend yield, Timbercreek is positioned to deliver inflation-boosting returns in 2026.
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