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  • The REIT managed to beat 2Q earnings consensus and its dividend yield is still 10%+.
  • We remain bullish on the long-term prospects of the company despite the fear of rising interest rates.
  • The recent quarterly beat was well within our expectations as the company continues to execute its distressed mortgage loan strategy.

PennyMac (NYSE:PMT) managed to beat 2Q earnings by some 50%, coming in at $0.93 (versus $0.59 consensus). Its key segment, net investment income, saw revenues up 57% y/y. Its EPS was up 86% y/y and its book value per share rose to $21.27 - with the stock trading right at book value. The return on average equity is up to 19%.

Since we first covered PennyMac back in August of last year shares are up just 3%. Then, since our February follow-up, shares are down 9%. But its quarterly dividend is up 3% since we first covered the stock. The yield on the stock is now an impressive 10.9%. As we noted in February,

It really comes down to interest rate management across a variety of risk profiles. Something that PennyMac is doing quite well. At its core is resolving and investing in distressed loans, which was its mission when it was founded in 2009. In the last four years, PennyMac has bought over $5 billion worth of nonperforming loans and managed to develop quite an understanding of the market and an ability to model asset class performance. The beauty of this model is that it has previously been reserved for private equity investors. PennyMac has brought that to the everyday investor.

Management noted that it will continue to use a disciplined approach when it comes to investing in distressed mortgage loans. The company noted that it expects to see a large supply of distressed loans come to market in the near term and will take part in pursuing new acquisitions.

Source: Update: PennyMac Earnings