Monthly Dividend Stock In Focus: Bridgemarq Real Estate Services

Updated on October 15th, 2024 by Felix Martinez

Bridgemarq Real Estate Services (BREUF) has two appealing investment characteristics:

#1: It is a high-yield stock based on its 9.3% dividend yield.
Related: List of 5%+ yielding stocks.
#2: It pays dividends monthly instead of quarterly.
Related: List of monthly dividend stocks

You can download our full Excel spreadsheet of all monthly dividend stocks (along with metrics that matter, like dividend yield and payout ratio) by clicking on the link below:

The combination of a high dividend yield and a monthly dividend makes Bridgemarq Real Estate Services appealing to income-oriented investors. The company also has a strong business model, with most of its revenues being recurring in nature. In this article, we will discuss the prospects of Bridgemarq Real Estate Services.

Table of Contents

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Business Overview

Bridgemarq Real Estate Services provides various services to residential real estate brokers and REALTORS in Canada. It offers information, tools, and services that assist its customers in the delivery of real estate services. The company provides its services under the Royal LePage, Via Capitale, and Johnston and Daniel brand names. The company was formerly known as Brookfield Real Estate Services and changed its name to Bridgemarq Real Estate Services in 2019. Bridgemarq Real Estate Services was founded in 2010 and is headquartered in Toronto, Canada.

Bridgemarq generates cash flow from fixed and variable franchise fees from a national network of nearly 21,000 REALTORS operating under the aforementioned brand names. Approximately 81% of the franchise fees are fixed in nature, and thus they result in fairly predictable and reliable cash flows. Franchise fee revenues are protected via long-term contracts.

Bridgemarq has a solid business relationship with its partners, and thus, it enjoys remarkably high renewal rates. The company has historically achieved a 96% renewal rate whenever a contract has expired.

Source: Investor Presentation

Moreover, Royal LePage’s franchise agreements, which comprise 96% of the company’s REALTORS, are 10-20-year contracts, and hence, they provide great cash flow visibility.

Bridgemarq has a dominant business position in Canada. Through its immense network of REALTORS, the company participated in over 70% of the total home resales that took place in Canada. Bridgemarq’s brands attract franchisees thanks to their reputation and the technological advantages they provide.

Despite its strong business model, Bridgemarq was severely hurt by the fierce recession caused by the coronavirus crisis in 2020. The Canadian real estate market faced an unprecedented downturn that year. Consequently, the company saw its earnings per share plunge 47%, from $0.34 in 2019 to $0.18 in 2020.

In 2Q2024, the company reported net earnings of $10.6 million, a significant increase from $1.1 million in the same quarter last year. Revenues also saw a sharp rise to $110.1 million from $12.8 million, mainly due to the acquisition of new businesses. Franchise fees improved due to rate increases and market conditions, though these were offset by the elimination of fees from the newly acquired entities. Operating expenses also grew, driven by higher commissions, general administrative costs, and professional fees related to the acquisition.

The company saw an increase in interest expenses and depreciation, primarily due to higher rates and the acquisition of brokerage operations. Total expenses rose by $6.5 million, reflecting the cost of integrating the acquired businesses and increased operating costs. Despite these higher costs, Bridgemarq realized a $10.6 million gain from the fair value adjustment of exchangeable units, reversing a loss from the prior year.

Year-to-date, Bridgemarq generated net earnings of $8.6 million, compared to a loss of $3.6 million in the prior period. Revenues totaled $122 million, significantly up from $24.8 million in 2023. Cash flow from operations increased by $5.7 million, largely due to improved performance of the acquired businesses and better working capital management. The company also experienced gains from settling deferred payments and other contractual obligations related to the transaction.

Growth Prospects

Bridgemarq pursues growth by continuously increasing the number of its partners.

Source: Investor Presentation

Since 2017, the company has grown the number of REALTORS by more than 13%. As a result, it now has 20,564 partners operating through 282 franchise agreements at 723 locations.

As mentioned, the vast majority of Bridgemarq’s franchise fees are fixed, which renders the company’s cash flows fairly predictable. However, this is easier said than done.

Bridgemarq has exhibited a somewhat volatile performance record over the last nine years due to the experienced volatility in the conditions of the real estate market as well as the swings of the exchange rate between the Canadian dollar and the USD. Nevertheless, the company has been able to more than double its adjusted earnings per share, from $0.35 in 2013 to $0.72 in 2024.

Given Bridgemarq’s strong business position, long-term performance record, and some growth limitations due to the company’s size, we expect approximately 4.0% average annual growth of earnings per share over the next five years.

Dividend & Valuation Analysis

Bridgemarq is offering an exceptionally high dividend yield of 9.3%, six times the 1.3% yield of the S&P 500. The stock is thus an interesting candidate for income-oriented investors but U.S. investors should be aware that the dividend they receive is affected by the prevailing exchange rate between the Canadian dollar and the USD.

Bridgemarq has a payout ratio of over 100%; the balance sheet does not look too good. The company’s net debt is $182 million, over 100% of the stock’s market capitalization. Overall, the company’s dividend is not likely to be reduced significantly in the absence of a severe recession.

On the other hand, investors should be aware that the dividend has remained essentially flat over the last nine years. Thus, it is prudent not to expect meaningful dividend growth going forward.

In reference to the valuation, Bridgemarq is currently trading for 13.9 times its earnings per share in the last 12 months. We assume a fair price-to-earnings ratio of 14.0 for the stock. Therefore, the current earnings multiple is lower than our assumed fair price-to-earnings ratio. If the stock trades at its fair valuation level in five years, it will enjoy a 2.4% annualized gain in its returns.

Taking into account the 4.0% annual growth of earnings per share, the 9.3% dividend yield and a 2.4% annualized expansion of valuation level, Bridgemarq could offer a 15.7% average annual total return over the next five years. This is an attractive expected total return, and hence, we advise investors to consider buying the stock around its current price.

Final Thoughts

Bridgemarq has a dominant position in its business and enjoys fairly reliable cash flows thanks to the recurring nature of most of its fees. It also offers an exceptionally high dividend yield of 9.3% but a high payout ratio of over 100%. The dividend yield makes it attractive for income-oriented investors.

Moreover, Bridgemarq seems attractively valued right now, as it has an expected 5-year annual total return of 15.7%. The stock’s cheap valuation has resulted primarily from a deceleration in business momentum lately, but we expect the company to return to growth mode in the upcoming years thanks to its consistent record of growing the number of its partners. Therefore, investors should take advantage of Bridgemarq’s cheap valuation and wait patiently for business momentum to accelerate again.

On the other hand, Bridgemarq is characterized by extremely low trading volume. This means that it may be hard to establish or sell a large position in this stock.

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