Excessive dividends are an indication of threat, which makes one surprise if the inventory is well worth the threat. Dividend yield is the annual dividend per share as a proportion of the share worth. If a inventory of $100 pays a $10 annual dividend, its yield is 10%. Typically, the yield will increase as a result of the inventory worth falls, and the inventory worth falls due to macro or firm headwinds.
Thus, when investing in a high-yield inventory, one ought to see if the corporate can maintain its free money move and whether or not it has to chop dividends. Allow us to deep-dive into Timbercreek Financials’ (TSX:TF) 9.5% dividend yield and measure the dangers and rewards.
Timbercreek Monetary’s ultra-high dividend yield
Timbercreek Monetary gives shorter-duration mortgage loans to income-producing properties in city areas. Since it’s non-banking, mortgage approvals are quicker, phrases are versatile, and rates of interest are increased as credit score threat can also be increased.
Timbercreek mitigates this credit score threat by giving loans to income-producing REITs with common money flows for properties in key city areas with excessive liquidity.
Most REITs use Timbercreek’s loans as bridge financing for property acquisitions, redevelopment, and capital enhancements. They repay loans via standard financing as soon as initiatives are accomplished or properties are offered. This time hole carries credit score threat because it may take longer to safe financing or to promote properties.
The Financial institution of Canada’s rate of interest cuts lowered mortgage yield however revived lending exercise. Within the second quarter of 2025, Timbercreek elevated its internet mortgage investments to $1.03 billion from $960.3 million a yr in the past. It earned an 8.6% weighted common rate of interest on its funding, down from 9.8% a yr in the past. It has used 87.4% of its accessible credit score restrict and has room to lend extra money.
Timbercreek’s dividend yield is 9.5% as a result of the inventory is buying and selling 25% under its February 2022 excessive of $9.65 and 11.7% under its ebook worth per share of $8.26. The market has priced in Stage 2 and three loans which have elevated its anticipated credit score loss (ECL) to $2.1 million from $97,000 a yr in the past.
The danger that comes with Timbercreek’s 9.5% dividend yield
The market has priced within the credit score threat of Stage 2 and three loans and a gradual restoration in lending exercise. About 80.3% of Timbercreek’s mortgage ebook has reached its flooring price, which has lowered the impression of future price cuts.
The worst appears to be over for Timbercreek as it may well now safe financing at a decrease rate of interest. The following step is an uptick in lending demand, which has been lagging resulting from commerce battle uncertainty.
Thus far, Timbercreek has held on to its dividends by distributing 97.8% of its distributable revenue. Nevertheless, its payout ratio is 115.4% of its earnings per share, which considers ECL. If high-risk debtors default, the lender may need to chop dividends or pay dividends from its reserves.
The excessive yield of 9.5% is a premium for the chance that comes with a 115.4% payout ratio from earnings per share.
Is Timbercreek Monetary well worth the threat?
Rate of interest cuts have lowered the price of funds but in addition the curiosity revenue. The tariff uncertainty led to weak macroeconomic situations that slowed restoration in actual property lending exercise. US President Donald Trump has terminated commerce negotiation talks with Canada, however that doesn’t appear to have an effect on the Canadian financial system due to an upcoming Supreme Court docket case on the legality of Trump tariffs.
Within the best-case state of affairs, macro situations will revive and enhance lending exercise. That would drive Timbercreek Monetary’s share worth up 5–7% and assist it maintain the present dividend per share. Within the worst-case state of affairs, stage 2 and three loans could default, and it’ll get well the cash by promoting the property. That would result in dividend cuts and cut back its share worth by 10% or extra.
Timbercreek is seeing a restoration of its Stage 2 and three loans, and a gradual enhance in lending. The truth that the lender has sustained the 2020 pandemic with no dividend lower makes the inventory well worth the threat. A $2,000 funding in Timbercreek Monetary can earn you $189 in annual dividends.
