Dividend Watchdog: How Safe Are These 4 REIT Yields?

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 |  Includes: FUR, NCT, RAS, UMH
by: Vatalyst

Here we look at four companies that invest in real estate. REITs, as they are known, pay 90% of net REIT earnings to shareholders by way of dividends. Investors can earn some great income with such investments. But how safe are the shares and the dividends?

Newcastle Investment Corporation (NYSE:NCT): Shares are trading around $4.00 as against their 52-week trading range of $3.55 to $8.85. At the current market price, the company is capitalized at $321.16 million. Earnings per share for the last year were $8.49, It paid a dividend of $0.60 last year (a yield of 14.80%) .

The company recently announced that it is selling 22.5 million shares in a public offering at $4.55 per share, with an option open to underwriters to purchase a further 3.38 million shares. It will be raising $102 million, and says it requires the money to pay “excess mortgage servicing charges”: Clearly a management that didn’t see such charges on the horizon. With the shares trading at below the offer price, the market is indicating its view. I suggest investors avoid this stock.

UMH Properties Inc. (NYSE:UMH): Shares are trading at $9 at the time of writing, against their 52-week trading range of $8.60 to $11.49. At the current market price, the company is capitalized at $130.73 million. Earnings per share for the last fiscal year were $0.40, placing the shares on a price to earnings ratio of 22.44. It paid a dividend of $0.72 last year (a yield of 8.10%).

UMH operates in a very niche marketplace, primarily owning and leasing land to manufactured home owners. It also leases homes to residents. While its business in mortgage securities of other REITs is, at the moment, paying dividends, the company’s core business is suffering from the economic lethargy of prospective manufactured home owners. This is unlikely to turnaround in the near future, and the shares are likely to lag the market accordingly. No more than a speculative buy at current levels.

RAIT Financial Trust (NYSE:RAS): Shares are trading around $3.40 at the time of writing, at the low end of their 52-week trading range of $2.90 to $11.34. At the current market price, the company is capitalized at $131 million. Earnings per share for the last fiscal year were $0.88, placing the shares on a price to earnings ratio of 3.88. It paid a dividend of $0.24 last year (a yield of 7%).

RAIT’s earnings have been declining for the past five years. It got caught in the melee of the financial crisis in 2008, and has not yet recovered. Its price performance this year does not tell the whole story: The stock has been on a steady decline since 2007, when it traded at around $100. However, last quarter’s earnings actually increased by 24% year on year, so perhaps there is light at the end of the tunnel. With a reported book value of $24.57 per share, and positive cash flow of $12.57 million, shares are overdue for a prolonged bounce.

Winthrop Realty Trust (NYSE:FUR): Shares are trading around $8.50 at the time of writing, as against their 52-week trading range of $8.05 to $13.84. At the current market price, the company is capitalized at $281.46 million. Earnings per share for the last fiscal year were $0.68, placing the shares on a price to earnings ratio of 12.56. It paid a dividend of $0.65 last year (a yield of 7.60%).

Winthrop owns and manages a number of properties across the United States. It recently announced a 10 year lease on 9200 square feet of space at its Deer Valley Medical Centre in Arizona, and sale of a vacant property at Knoxville for a little more than book price. Earnings are expected to increase to around $1.50 per share over the next two years. At this rate of earnings growth, the shares look undervalued. Buy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.