First National Financial: A Steady Anchor in Canada's Mortgage Market Amid Rising Dividends and Tax Efficiency

First National Financial Corporation (TSX: FN) has emerged as a pillar of Canada's mortgage sector, leveraging its $155 billion mortgage portfolio and a disciplined dividend policy to attract income-focused investors. With a July 2025 dividend increase to $0.208334 per share—marking a 1.9% rise from the $0.2042 level in July 2024—the company underscores its commitment to rewarding shareholders while expanding its role in prime residential and commercial lending. Here's why this makes FN a compelling buy for long-term portfolios.

Dividend Growth: A Slow and Steady Climb

First National's dividend hikes, though modest, reflect a deliberate strategy to balance growth and shareholder returns. The July 2025 adjustment—its 18th increase since listing on the TSX in 2006—builds on a consistent track record. For example, its December 2024 dividend included a special payout of $0.50 per share, funded by excess capital from its robust mortgage origination business.

The dividend's classification as eligible under Canadian tax law adds value. Unlike non-eligible dividends, eligible dividends benefit from a lower “gross-up” rate and preferential tax credits, resulting in higher after-tax income for Canadian investors. For a retiree holding FN in a non-registered account, this distinction could mean saving hundreds of dollars annually.

The Mortgage Machine: Scale and Stability

First National's dominance in Canada's mortgage broker channel—where it holds a top-three market share—fuels its financial resilience. Its $155 billion portfolio, up 6% annually as of Q3 2024, reflects steady demand for prime residential mortgages amid a resilient housing market. Unlike banks, First National operates as a non-bank originator, focusing on high-quality loans sourced through brokers. This niche allows it to avoid the regulatory and capital constraints facing traditional lenders.

The company's low-risk profile is another strength. Over 90% of its mortgages are prime-quality, with minimal exposure to distressed borrowers. Even if Canada's housing market cools, the stability of its loan book should shield profits.

Tax Efficiency Meets Income Demand

For income investors, FN's dividends are a twofer: a reliable cash flow stream and a tax-efficient structure. Consider this: a Canadian investor earning $50,000 annually would keep roughly 93% of a $1,000 eligible dividend after taxes, versus 83% for non-eligible dividends. This edge becomes critical in a low-yield environment where safe, tax-smart income is scarce.

FN's inclusion in the S&P Canadian Dividend Aristocrats Index further signals its reliability. The index requires companies to have increased dividends annually for at least five years—a bar FN has cleared comfortably.

Risks on the Horizon

No investment is without pitfalls. Rising interest rates or a sharp housing correction could pressure margins, as variable-rate mortgages reset and originations slow. Additionally, FN's reliance on mortgage brokers—its primary distribution channel—exposes it to competition and regulatory changes.

Yet these risks are mitigated by First National's diversified portfolio and low leverage (its debt-to-equity ratio remains under 10x). Management has also demonstrated prudence in capital allocation, prioritizing dividends while maintaining liquidity.

The Investment Case: Buy for Income and Stability

FN's July 2025 dividend hike reinforces its status as a high-quality income play. With a current yield of ~4.2% (based on its July 2025 share price), it outperforms most Canadian banks and offers tax advantages rare in the sector.

For portfolios seeking income resilience, FN's combination of tax efficiency, dividend consistency, and market-leading scale makes it a standout pick. While not a high-growth stock, it provides ballast in volatile markets—a role increasingly valued as global economic uncertainty grows.

Action Items for Investors:
- Buy now: Accumulate FN shares ahead of its August 15, 2025 dividend payment, with a focus on compounding returns.
- Monitor mortgage volumes: Track FN's quarterly updates on originations and portfolio growth to gauge sustainability.
- Consider tax efficiency: Use non-registered accounts to maximize the benefits of eligible dividends.

In a world where stable income is hard to find, First National Financial's blend of dividend discipline and mortgage-market clout positions it as a cornerstone holding for decades to come.