What is a private mortgage investment?


A private mortgage is simply a mortgage held by an individual, group of individuals, or private corporate entity, such as a Mortgage Investment Corporation (MIC), instead of a bank or other institutional lender.

The legal status of any mortgage is the same, regardless of who holds the mortgage. The mortgage borrower is legally obligated to effect repayment, at a stated interest rate, to the mortgage holder, or mortgagee, within a stated time period. The mortgage loan is secured by a charge on the underlying real estate owned by the mortgage borrower.

Private mortgage interest rates are typically higher than bank mortgage rates. Accordingly, private mortgage investors have the potential to achieve appreciably higher investment returns than those afforded by other fixed income type investments, such as GICs, bonds, and preferred shares.

How I monitor my investment?


All shareholders receive a copy of the annual audited statements and an individualized statement reflecting dividend calculations and share related activity, as well as quarterly management prepared financial statements.

Shareholders holding their shares outside of a registered plan, also receive a T5, reflecting the amount of their annual taxable dividend. Activity pertaining to shares held within an RSP, RRIF or TFSA will also be reflected in the statements provided by the registered plan trustee.

We welcome shareholder inquiries at any time, and are always happy to discuss the Companies’ results and progress.

How and When are SD’s profits distributed to investors?


The Income Tax Act requires that 100% of a MIC’s net income, as verified by Independent audit, be distributed annually to shareholders in the form of a dividend. SD Share dividends are paid quarterly and may be received in cash or re-invested in additional shares by way of the Company’s Dividend Re-investment Plan (DRIP). Cash dividends are remitted by way of electronic bank deposit.

The dividend is taxed as interest income, in that it essentially represents a flow through of mortgage interest income.  Both cash and stock dividends earned outside of an RSP, RRIF or TFSA are fully taxable in the calendar year received.

Quarterly dividends are paid at a rate sufficient to achieve an annual effective rate of return equivalent to the Target Yield .

Who can invest in SD’s shares?

ACanadian and U.S. residents as well as non-residents may subscribe for shares. Shares may be held individually, jointly, in trust, in a corporation, or in a self-directed RRSP, RRIF or TFSA.

Are SD shares RRSP, RESP and TFSA eligible?


What rate of return may I reasonable expect?


SD’s Participating Shares have a Target Yield equivalent to the Government of Canada 2 Year Bond Yield at the beginning of the fiscal year (June 1st) plus 5.50%.

SD has exhibited consistent performance over its entire history, never failing to generate an annual return at least equivalent to Target Yield, and achieving an average annual compounded return of 11.04%.

Long term SD returns compare extremely favourably with all asset classes including short and long term bonds and stocks. Moreover, this superior long term growth was achieved without the often extreme volatility that characterizes stocks and to a lesser extent bonds.

Your investment grows consistently year in and year out.

SD shares do not fluctuate in value and there is typically only modest variation in annual dividend yields largely in response to changes in market interest rates. Past performance is not necessarily an indicator of future performance or expected returns.

How do mortgage investment corporations compare with other investments?


Most homeowners who have had a mortgage would have a good understanding of what a mortgage is and how it works. Most other investments, such as stocks, bonds, income trusts and mutual funds, are affected by variables not always readily understood by the average investor looking at mortgage investment corporations.

MIC share values do not fluctuate in response to market forces like publicly traded stocks, bonds and income trusts, or mutual fund unit values. MIC share values are always equivalent to the share issue price, because of the Income Tax Act (ITA) rule requiring 100% of a MIC’s net income to be paid out to the shareholders by way of an annual dividend. The share value would only decrease if the MIC experienced an annual operating loss.

For example, a MIC commences operations with $1 million in share capital, comprised of 1 million shares issued for $1.00. each, contributed by a number of individual investors. It utilizes the share capital to acquire a mortgage portfolio, in the amount of $1 million. At the end of the first operating year, the MIC earns an annual net income of $100,000., or 10 cents per share, representing an annual shareholder return on investment of 10.00%.

The Income Tax Act requires that all of the net income must be distributed to the shareholders in the form of a dividend. If all of the shareholders take a cash dividend, the MIC’s assets would remain at $1 million, which when divided by the 1 million shares outstanding, means that the shares are worth $1.00., consistent with the issue price. Conversely, if all of the shareholders elected to receive their dividend in the form of additional shares, the MIC’s assets would be $1,100,000., which when divided by the 1,100,000 shares now outstanding by virtue of the stock dividend, would again equate to a share value of $1.00. However every investor would have 10% more shares, worth 10% more than their original investment.

MIC share values are a function of the quality of the Company’s mortgage portfolio, which in turn is principally determined by the value of the real estate securing the mortgages. Real estate values are affected by a number of factors, including the condition, location and type of the property, and local market conditions. These are factors that can be readily seen, measured and compared. Real estate values tend to be much less volatile than stock and bond prices. Even if the borrower defaults, the mortgage investor is protected by collateral that is stable and immoveable.

SD’s mortgage portfolio is low risk for a number of reasons: (i) The real estate security is residential, comprised primarily of single family owner occupied homes; (ii) First mortgages are heavily over weighted; (iii) Lending is concentrated in stable, largely recession proof,mostly value surging real estate markets, mainly in the Greater Toronto Area. MIC shares typically produce consistent returns, primarily because of the nature of mortgage investments. Mortgage interest rates are fixed, and repayment must occur at regular intervals.

SD MIC returns have exceeded those generated by Canadian short and long term bonds and major stock indices. MIC shares generate substantial regular income relative to alternative investments.

In short, investments in mortgage investment corporations are typically characterized by constant share values, attractive, consistent returns, and the potential to generate regular income.