High Yielding Stocks You Can't Miss
Piyush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
REIT’s get tax benefits, given they pay out at least 90% of their earnings to their shareholders, and thus the dividend yield of REITs are high. Here are a few REITs that I believe could combine to create a good income portfolio.
Western Asset Mortgage Capital (NYSE: WMC)
Western Asset Mortgage Capital is an mREIT that invests mainly in Residential Mortgage Backed Securities (RMBS), which are not backed by federal agencies. Since its IPO in May, the stock is up by nearly 11%, which coupled with its massive dividends, is nothing short of a “treat for investors.”
In the recent earnings release, the company reported net income of $28.2 million and the core income stood at $9.3 million. The Agency RMBS sales accounted to revenues of $658 million with net gains of $6.5 million.
In order to take advantage of the recovering housing sector, the company raised $301 million, not by further leveraging its position but by selling 1.8 million shares. As of Sept. 30, the company was reported to be leveraged at 8.5x, which is not so alarming, as these levels are common amongst REITs. Well ,as they say “The trend is your friend…until the end,” so one needs to practice cautious investing with mREITs like Western Asset.
ARMOUR Residential REIT (NYSE: ARR) typically invests in securities that are backed by Federal agencies. Though the shares of ARR just break-even YTD, investors still have a reason to cheer, due to its high dividend payout on a monthly basis.
I tend to follow insider activity because it somewhat indicates the future performance of a company. The highly placed insiders at ARMOUR together purchased 30,000 shares in their personal capacity.
In the recent quarter, the company reported a mammoth 185.7% jump in revenues compared to last year’s quarter. The margins slipped slightly, which is an industry-wide issue due to the increase in prepayments. Investor’s worried about declining interest rates should note that ARMOUR’s exposure to adjustable rate securities is way below 30%.
Analysts expect earnings growth to be around 8% for the next year, and 10% for the next five years. These estimated returns, when coupled with ARR’s dividend pay-outs at the current rate, could return 100% shareholder value in less than 3 years (on a compounded basis). Sounds like a great investment to me.
Newcastle Investment Corp (NYSE: NCT) also invests in residential properties and securities that are not backed by federal agencies. The company’s reported EPS rose from $0.35 in the last year’s quarter to $1.63 in Q3 FY 2012. The earnings boost was due to the recent $130 million sale of its holdings in CDO X, which was originally purchased for $50 million. This is the second sale of CDO’s, and the company still owns five more CDO’s that are approximated to be worth $2.42 billion. Management announced that the sale was a huge positive for the company, and going by the trend we could be seeing more CDO sales in the near term future. Overall the company’s liabilities were reduced by $1.2 billion, as CDO X had $1.3 billion in collateral. Due to this, Newcastle Investment Corp’s debt ratio declined from 3.8 to 2.2.
Since all three companies yield high dividends, appear to be undervalued, and are performing well, all three get a buy rating.
PiyushArora has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!