MCAN Mortgage Corp Stock (TSX:MKP) | Investing | Discussion forum

Dean said

And their 'Sweet' Dividend (~8.70%)
is a very nice Added Bonus !  

Not suggesting anything about the value of the investment, just an FYI - "Regular dividends are taxed as interest income to MCAN’s shareholders" (from MCAN site).

Why would the dividends be taxed as interest, not as dividends? Is this a US company or something like that?

Wrayzor said
They are a Canadian company, from what I've seen, but they're set up as a "Mortgage Investment Corporation" and flow through their income, which I gather is primarily interest. I don't even pretend to be a corporate tax expert, so I don't know the ins and outs of the rationale.

Chartered Professional Accountants (BC) article The Rise of the Mortgage Investment Corporation: A hit 40 years in the making has a history of mortgage investment corporations in Canada.

A Canadian corporation that meets certain requirements under the Income Tax Act is a mortgage investment corporation. A mortgage investment corporation is allowed to deduct income distributed to shareholders from its taxable income and pay no income tax on that income. An ordinary corporation cannot do this.

Since no corporate tax was paid on the income distributed, the distribution is not an eligible dividend or an other-than-eligible dividend. There is no gross-up and no dividend tax credit.

Lodown said
What about the looming housing crash in Canada if rates do not come down sufficiently or fast enough? Why is MKP better than any of the banks which have much greater growth prospects? Rather than buy MKP as a risk investment, I would say buy the big 6 banks as they are better risk investments.  

Much greater growth prospects? How do?

While Mortgages play a significant part of what banks make money from the big 5 are BIG for a reason in that they are somewhat diversified have massive assets under management.

I think one advantage MKP has is that comparatively speaking its assets under management are smaller and the rules of very large numbers suggest to me that MKP in fact has a longer runway to take off from.

Whether either will beat out the other is anyone's guess . I think both could be part of someone's portfolio if it matches their risk tolerance, but I wouldn't replace banks with MKP as I see them as very different assets.

Lodown said

ETF ZEB represents the big six banks with equal weights. The results would be even ...

MKP is the same as the banks, as the chart above shows they track up and down in the same manner.  

Thanks for bringing this up. I did some digging, and it turns out MKP and the bank ETF (ZEB) are only moderately correlated (about 0.65) according to portfolio visualizer. So they're not the exact same at all. Which got me curious as to why that might be. So I compared it to things like Home Depot and some mortgage backed ETFs (MBB) and discovered that it's like it's tied to housing stuff, but in a broader way than just mortgages. Banks seem to carry a greater correlation with Home Depot suggesting their price may be more driven by consumer confidence and spending while MKP less so. That said MKP's price seemed to be equally influence by things like mortgage backed loans nearly at nearly 2x the correlation compared to ZEB so more so than banks (which I found surprising). So if you're thinking about MKP vs Banks, don't just compare it to the housing market. MKP might actually give you exposure to housing market trends and consumer confidence in a unique way. Although they rhyme with the ZEB ETF there's no guarantee this will or will not be the case moving forward.

IMO, MKP could fit in a portfolio, but maybe not for the reasons we first thought. It's not just a bank alternative - it's its own beast that picks up on mortgage backed loans and consumer spending in an interesting way I think. So don't write off the big banks, but don't dismiss MKP either. They each might have their own role to play in a mix-and-match portfolio. Just make sure you know what you're getting into and how their dividends are taxed.

Portoflio visualizer correlation matrix: https://www.portfoliovisualizer.com/asset-correlations?s=y&sl=6ROHAh9JpltB8iFnBp4OcF