- First quarter dividend was $0.27, anticipate an increase this year.
- First quarter financial report displays strong growth in interest income.
- Federal Reserve holding interest rates low stabilizes housing and mortgage markets.
Stocks that pay a double-digit quarterly dividend have a stock price roller coaster ride from one ex-dividend date to the next. Just after the ex-dividend date the stock price drops. This is due to some investors buying in to get the dividend, and then out quickly after the ex-dividend date that helps fuel the drop of the stock price. Within about 30 days the stock bottoms out and begins to build in price and peaks just prior to the ex-dividend date, with the cycle occurring again every 90 days. New York Mortgage Trust is no different than most stocks on this cycle; however, this company has some positive reports that will drive the price above its 52-week high.
A self-description from its website states: "New York Mortgage Trust, Inc. (Nasdaq: NYMT) is a real estate investment trust (REIT) that acquires and manages primarily real estate-related assets. These include Agency and non-Agency mortgage-backed securities, high credit quality residential adjustable rate mortgage loans, commercial mortgage loans and other financial assets. As a REIT, New York Mortgage Trust, Inc. is not subject to federal income tax, provided that it distributes at least 90% of its REIT income to stockholders."
New York Mortgage Trust, Inc. paid its quarterly dividend of $0.27 on April 25, 2014. This was 93% of the taxable income, meeting the REIT requirement (the company made $0.29 per share taxable income. 27/29 = 93%). The ex-dividend date was March 20, 2014, when the stock price hit a high of $8.12 the day prior, March 19. Since then the price has dropped to a low of $7.01 on April 15, where it closed at $7.32. It has climbed steadily to $7.85 to open on May 27, 2014. Over the next 60 days, we anticipate the stock will appreciate to near $8.50 prior to the next quarterly dividend.
We believe NYMT will push beyond its current 52-week high ($8.12), due to the strong first-quarterly report (on the company's web page here). Second quarter's report is expected to be as strong with additional sales from a positive housing market and a dividend pushing up to $.030 per share. A higher dividend projection can be supported by the first quarter 10-Q report filed on May 8, 2014 where the net income was $21.3 million, or $0.29 per share (additional details on the company's financials on the 10-Q report). The company reported $8.2 million in realized gain from sales and refinancing of distressed residential mortgage loans. We anticipate the company will continue strong through the summer season.
The book value per common share of $6.48 on March 31, 2014, as compared to $6.33 per common share on December 31, 2013. The shares are trading at a premium of 1.2 per book price and with the 13.76% dividend yield, it is likely to remain strong and push the price into the $8.50 range. With a higher earnings than the dividend paid, the book price was expected to increase.
More details from the 10-Q report displays interest income rose to near $15 million in the first quarter of 2014, over the fourth quarter of 2013 at just over $11 million. The total interest income was up to $95 million from $59 million in the quarter before. These totals lead to a $21 million net income, higher than the $15 million from fourth quarter 2013. These numbers are driving the profit margin higher, which will push the need to raise the dividend this year to maintain the company's REIT status.
Costs rose over the quarter and compared with 2013's financial reports. The increase was near the same percentage of the increased dollar amount with the additional investments. The advantage will be a lower overhead in expenses in the long run.
The company completed a public offering of 11.5 million shares. This brought in $75.8 million for additional investments, but also will share all the profits. This is seen as a non-factor in the short term, but more shares always spreads the wealth. Many REITs make offerings to sell more shares to raise capital. Two examples of other REIT stock offerings:
Over the last year ARMOUR Residential REIT Inc. (NYSE: ARR) has authorized the repurchase of 50 million common shares and executed the repurchase of 13 million in 2013 and 600 thousand in first quarter of 2014 (my previous article on ARR).
American Capital Agency Corporation (NASDAQ: AGNC) announced on May 5, 2014 the offering of 7 million preferred shares of stock with a face value of $25. The "Series B" will pay a 7.750% and the stock is cumulative and redeemable.
NYMT, along with other REITs in the mortgage market, have a higher risk from the changes in interest rates. If rates change suddenly or take a jump of 1% or more, it would cost the company more money to cover the increased costs of interest on money borrowed to cover their short term financial obligations. During the May 2013 scare, when the Federal Reserve mentioned the word "Tapering", the market over reacted and the REIT market as a whole lost nearly 30% of its stock value. NYMT dropped the least, about 15 percent over the 3-month period. Since then the Federal Reserve has become a little more sensitive in their comments.
The Federal Reserve Board has continued a quiet, but solid position of keeping interest rates low to support a steady growth of the economy. This has helped maintain a strong mortgage market for many REIT companies. The Federal Reserve has stated clearly that it is committed to holding rates down for 2014 and into 2015. This is a strong indicator for investors to feel comfortable in the mortgage markets. When the Federal Reserve does begin to loosen interest rates, NYMT is a hybrid that has diversified enough to protect itself from a 1-2% jump in the interest rates.
We anticipate another positive quarter for New York Mortgage Trust, Inc. The stock price has already begun its climb and we expect it to surpass the current 52-week high of $8.12 enroute to near $8.50 in July 2014. With a strong dividend stock paying a dividend yield of over 13%, we recommend a buy and hold position.
Disclosure: I am long NYMT, ARR, AGNC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.