Builders Capital Mortgage: Steady Dividends and Growth in Volatile Markets

Investors seeking reliable income streams in an era of economic uncertainty are often drawn to companies with unbroken dividend records. Builders Capital Mortgage Corp. (TSXV:BCF), a Mortgage Investment Corporation (MIC) with over a decade of consistent payouts, fits this profile. While its Class A shares offer an annualized dividend yield of 9.4% as of early 2025, the company's ability to grow its mortgage portfolio and navigate macroeconomic headwinds makes it a compelling play for income-focused investors.

A Decade of Dividend Discipline

Builders Capital has maintained a strict dividend policy since its 2013 inception, paying out $0.20 per Class A share quarterly since 2020. This consistency is notable in an industry where many lenders have cut or suspended dividends during crises. For instance, in Q1 2025, the company distributed $0.20 per Class A share, while Class B shareholders received an additional $0.40, yielding an annualized 16% return on the original $10.00 issue price.

Backtesting the performance of this dividend discipline reveals compelling results. A strategy of purchasing 5 days before each quarterly dividend announcement and holding until the ex-dividend date from 2020 to 2025 yielded a compound annual growth rate (CAGR) of 9.02%, with excess returns of 7.62% and a Sharpe ratio of 0.61. This highlights the strategy's effectiveness in capturing momentum around dividend events, reinforcing the reliability of BCF's income stream.

The MIC structure under Canada's Income Tax Act further strengthens dividend reliability. As a MIC, Builders Capital must distribute all taxable income as dividends within 90 days of its fiscal year-end. This “pass-through” model ensures shareholders receive steady cash flows, taxed as interest income—a tax-efficient benefit compared to dividends from traditional corporations.

Growth Amid Turbulence

While dividends are reliable, Builders Capital's recent financial performance underscores its growth potential. In Q1 2025, revenue hit a record $1.77 million, a 50.1% jump year-over-year. This surge stems from a 64.7% expansion in its mortgage portfolio to $53.1 million, fueled by a $50 million bond offering. The bond's second tranche, closed in January 2025, funded residential construction loans in Alberta and British Columbia—a strategic move capitalizing on regional demand for housing.

The company's efficiency is evident in its 7-month mortgage turnover rate—well ahead of its 9-month target—demonstrating swift capital recycling. Even as Canadian real estate markets softened in British Columbia and trade tensions with the U.S. loomed, Builders Capital maintained a conservative risk posture. Impaired loans fell to 4.7% of total mortgages, down from higher levels in 2023, signaling improved credit quality.

Risks and Considerations

No investment is risk-free. Builders Capital's performance is tied to interest rates and real estate cycles. The Bank of Canada's 225-basis-point rate cut by mid-2025 may ease borrowing costs, but prolonged economic slowdowns or housing market declines could pressure loan performance. Additionally, the company's reliance on related-party funding—such as a $4.25 million tranche from Builders Capital 2019 Ltd.—requires scrutiny, though these transactions were approved by an independent committee.

Analysts rate BCF a “Buy” with a $10.50 price target, slightly above its May 2025 fair value estimate of $9.92. The current P/E ratio of 10.7 suggests reasonable valuation for a stable income play, though shareholders must accept the MIC's lack of capital appreciation potential typical of growth stocks.

The Investment Thesis

Builders Capital offers a defensive income strategy in volatile markets. Its dividend discipline, tax efficiency, and prudent risk management make it suitable for portfolios seeking stability. The 9.4% yield, paired with 11 years of uninterrupted payouts, provides a hedge against equity market volatility.

Furthermore, historical backtesting confirms the strategy's effectiveness: investors who timed their purchases around dividend events achieved a 9.02% CAGR, underscoring the value of disciplined timing in this dividend-focused investment.

However, investors should weigh sector-specific risks. Those comfortable with exposure to Canadian real estate and willing to prioritize income over growth may find BCF attractive. For others, pairing it with more dynamic assets could balance the portfolio.

In sum, Builders Capital Mortgage stands out as a reliable dividend stalwart in a turbulent landscape. Its track record and strategic capital deployment suggest it will continue to deliver for income-focused investors—even as macroeconomic clouds gather.

Final Note: Always conduct independent research and consult a financial advisor before making investment decisions.