Newcastle Investment: A View From The Perspective Of A Preferred Investor - An Update

| About: Newcastle Investment (NCT)


Newcastle's common stock appears to have ended the quarter virtually in the same place as it began it.

Although its preferreds trended slightly down, I was not surprised because of the recent irrational exuberance of preferreds most were simply priced too high.

I consider the NCT preferreds to be still a relatively safe bet offering a nice yield.

This revisit updates my initial look at Newcastle Investment Corp. (NCT) from my August 16, 2016, article, "Newcastle Investments: A View From The Perspective Of A Preferred Investor".

Although it is my hope that you will read the entire article, for which I have provided the link above, my bottom-line assessment and buy recommendation at the time were as follows:

Ultimately, I must decide whether or not I believe in the long-term survivability of NCT, which I do. I believe this because the past is prologue, and this company has performed solidly within its peer group and shows a low debt/equity, especially within its peer group. Furthermore, in my experience, few, if any, of these types of companies have gone bankrupt. If I am wrong, I'm certain that I will be corrected in the comments section, which I welcome because I am here to learn as much as I am to instruct.

The paragraph above was taken from my initial May article, the following paragraph was my assessment of NCT in August.

I reaffirm my statement that this company, at present, faces no existential threat, which as far as I'm concerned is the only way the cumulative preferred investor can ultimately lose.

Let's see how the commons have performed over the past three months since I wrote the initial article concerning Newcastle. Because of the greater volume of common shares traded as opposed to the limited liquidity of most preferreds, I find the commons to be a better indicator of a company's performance.

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It appears that over the past three months, NCT's price movement has been wildly erratic; however, it ended up slightly higher, On May 17, its commons traded at $4.55 and is currently trading at $4.57.

As for NCT's preferreds:

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Over the past three months, all three preferreds have trended down slightly. However, as I have predicted often and repeatedly, the basic preferred market was experiencing irrational exuberance and too many preferreds had, with little reason, exceeded their par values as NCT preferreds had done. Guess what folks, along with many others, NCT's preferreds have fallen back to a more sane value. Nothing to notice here, they are still trading around par value.

Now for a little forward guidance:

Because, as I illustrated above, as a long-term cumulative preferred investor, I am little concerned about quarterly financial reports and their attendant conference calls, which are liberally spun, I don't bother paying much attention to them unless the particular company is at risk of suffering some existential threat. NCT is not one of those companies; therefore, it's time to determine if either of its preferreds are a buy at this time, and if so, which is the better buy.

NCT Preferreds 11-17-16
Symbol Yearly Dividend Price Dividend/Price Yield Best
NCT-B 2.4375 25.40 2.4375/25.40 9.60% Best
NCT-C 2.0125 24.46 2.0125/24.46 8.23%
NCT-D 2.09375 24.52 2.09375/24.52 8.54%
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To begin all are currently callable.

  • Although the B offers the greatest yield, if called the holder at this price will lose 0.40. And because it costs NCT the most per share it will certainly be called first if and when it is called.
  • The C offers the greatest appreciation upside when called, but not enough to make it a worthwhile buy because it is only currently priced at a few cents more than the D, which offers a greater yield percent.
  • I chose the B because with one quarterly payment the 0.40 cent loss, if called, is more than covered, and going forward the 1.06% higher yield is too good to pass up. Of course NCT could call it immediately and the market would turn this genius into an idiot.

Disclosure: I am/we are long NCT-B.

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.