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Should You Buy First National Financial And Its 6.2%-Yielding Dividend?

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Ploutos Investing


  • First National Financial is expected to continue to grow its mortgage originations.
  • The company is expected to face margin compression due to its securitization strategies.
  • The company pays an attractive dividend but its shares are trading at a valuation above its peers.

Investment Thesis

First National Financial (OTCPK:FNLIF) (TSX:FN) is Canada’s largest non-bank originator and underwriter of residential mortgages. The company is expected to continue to grow its mortgage origination volumes thanks to the new B-20 Guideline in Canada and its launch of Alt-A product. However, the company may continue to face near-term net interest margin compression due to its securitization strategies. While it pays an attractive dividend, its shares are trading at a valuation below its peers.

Source: Company Website

What we like about First National Financial

Mortgage origination growth continues

First National Financial has grown its mortgage originations by a compound annual growth rate of 4% since 2012 (see chart below). Although First National Financial’s mortgage origination volumes declined slightly in 2017, it is returning to positive growth in 2018. Its total new single-family residential mortgage origination was C$3.4 billion in Q2 2018. This was a growth rate of 5%. Its commercial mortgage origination increased by 17% year over year to C$1.7 billion. Overall, its new origination increased by 9%. This growth rate was much better than the larger Canadian banks whose growth rates were in the 5% range in the second quarter.

Source: Investor Presentation

Re-launching of its Alt-A product

Although the introductory of B-20 Guideline in Canada has resulted in a slowdown in mortgage originations, there are definitely opportunities for alternative mortgage companies. In response to this, the company has re-launched its Alt-A product this past quarter. Alt-A product is considered riskier than prime product but less risky than subprime product. The last time First National Financial had this product was back in 2007. The company at that time originated more than C$700 million. The product was discontinued during the financial crisis. Management now sees an opportunity after B-20 Guideline tightening as there will be many borrowers who have good credits but for some reason did

This article was written by

Ploutos Investing profile picture
I am a value focused investor. Stocks rise and fall for many different reasons that we often cannot predict. Eventually, it is those companies with a wide moat and the ability to generate cash flow that prevail. Therefore, my investment focus is to find value stocks that are able to generate cash flow, with sustainable dividends and provide growth over time. I focus my attention on analyzing large-capped dividend growth stocks, REITs and ETFs. I aim at providing a quarterly update and insights on stocks I follow. Please feel free to browse the articles that I wrote and provide any comments.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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