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We like Hatteras Financial Corp for the following reasons:

  • A healthy dividend of 12.6%.
  • It has a positive free cash flow of $334 million.
  • Net income has increased from $174 million in 2009 to $284 million in 2011; an increase of 57%.
  • Cash and cash equivalents have increased from $7.2 million in 2009 to $18.1 million in 2011; an increase of 151%.
  • Total revenue has surged from $283 million in 2009 to $446 in 2011, an increase of 58%.
  • Operating income has surged from $77 million in 2008 to $334 million in 2011, an increase of 333%.
  • A splendid quarterly revenue growth rate of 54.2%.
  • It sports a very good three year dividend growth rate of 15.71%.
  • A very strong quarterly earnings growth rate of 54.5%.
  • A good total three year returns of 74%.
  • It has a payout ratio of 98%. Payout ratios are not important when it comes to REITs, but it's interesting to note that the ratio is below 98% when in most cases it's usually in excess of 100%.
  • It has decent interest coverage of 3.00.
  • A strong free cash flow yield of 15%
  • 100K invested for 4 years would have grown to 166K.

Important facts investors should be aware of in regard to investing and REITs:

Payout ratios are not that important when it comes to REITs as they are required by law to pay a majority of their cash flow as dividends. Payout ratios are calculated by dividing the dividend rate by the net income per share, and this is why the payout ratio for REITs is often higher than 100%. The more important ratio to focus on is the cash flow per share. If one focuses on the cash flow, one will see that in most cases, it exceeds the dividend declared per share.

Hatteras Financial Corp (NYSE:HTS)

Industry: REITs

Free cash flow = $334 million.

Net income for the past three years

Net Income - 2009 = $ 174million

Net Income - 2010 = $169 million

Net Income - 2011 = $ 284 million

Total cash flow from operating activities

2008 = $77.32 million

2009 = $181.79 million

2010 = $176.27 million

2011= $334 million

Dividend yield five year average =

Dividend rate = $ 3.90

Dividend growth rate 3 year average= 15.71%

Dividend growth rate 5 year average= = N/A

Consecutive dividend increases = 0 years

Paying dividends since = 2008

Total return last 3 years = 74.13%

Total return last 5 years = N/A

Related companies (Peer group analysis)

For investors looking for other ideas we have provided detailed data on four other REITs.

Company: Armour Res REIT (NYSE:ARR)

Free Cash Flow = $118 million

Basic Key ratios

Percentage Held by Insiders = 8.9

Market Cap ($mil) = 966

Growth

Net Income ($mil) 12/2011 = N/A

Net Income ($mil) 12/2010 = 7

Net Income ($mil) 12/2009 = -2

12months Net Income this Quarterly/ 12months Net Income 4Q's ago = -244.49

Quarterly Net Income this Quarterly/ same Quarter year ago = 220.84

EBITDA ($mil) 12/2011 = N/A

EBITDA ($mil) 12/2010 = 10

EBITDA ($mil) 12/2009 = -2

Net Income Reported Quarterlytr ($mil) = 24

Annual Net Income this Yr/ Net Income last Yr = 377.87

Cash Flow ($/share) 12/2011 = N/A

Cash Flow ($/share) 12/2010 = 0.85

Cash Flow ($/share) 12/2009 = -0.49

Dividend 5 year Growth 12/2011 = N/A

Sales ($mil) 12/2011 = 0

Sales ($mil) 12/2010 = 8

Sales ($mil) 12/2009 = 0

Dividend history

Dividend Yield = 18.49

Dividend Yield 5 Year Average 09/2011 = 8.08

Annual Dividend 12/2011 = 1.41

Annual Dividend 12/2010 = 1.52

Forward Yield = 18.49

Dividend sustainability

Payout Ratio 06/2011 = 3.13

Performance

Percentage Change Price 52 Weeks Relative to S&P 500 = -7.34

Standard Dev Target Price Estimate = 0.89

EPS Percentage Change F2/F1 = 1100

Next 3-5 Year Estimate EPS Growth rate = 2

EPS Growth Quarterly(1)/Q(-3) = -162.97

ROE 5 Year Average 09/2011 = 1.11

ROE 5 Year Average 06/2011 = 1.11

Return on Investment 06/2011 = -4.36

Debt/Total Cap 5 Year Average 09/2011 = 17.73

Debt/Total Cap 5 Year Average 06/2011 = 17.73

Current Ratio 06/2011 = 1.22

Current Ratio 5 Year Average = 0.77

Quick Ratio = 1.24

Cash Ratio = 1.24

Interest Estimate Coverage = 0.20

Valuation

Book Value Quarterlytr ($/sh) 06/2011 = 7.59

Annual EPS before NRI 12/2010 = 1.12

Price/ Book = 1.06

Price/ Cash Flow = 26.12

Price/ Sales = 8.79

EV/EBITDA 12 Mo = -491.99

P/E/G F1 = 2.91

Q1 Standard Dev/ Consensus = 0.05

R-squared EPS Growth 12/2011 = N/A

R-squared EPS Growth 09/2011 = N/A

P/E F1/ LT EPS Gr = 2.91

Company: Invesco Mortgage (NYSE:IVR)

Free Cash Flow = $305.3 million

Basic Key ratios

Percentage Held by Insiders = 0.15

Market Cap ($mil) = 2037

Number of Institutional Sellers 12 Weeks = N/A

3 Month Percentage Chg Short Interest = n/a

Growth

Net Income ($mil) 12/2011 = 282

Net Income ($mil) 12/2010 = 98

Net Income ($mil) 12/2009 = 15

12months Net Income this Quarterly/ 12months Net Income 4Q's ago = 184.29

Quarterly Net Income this Quarterly/ same Quarter year ago = 91.78

EBITDA ($mil) 12/2011 = 337

EBITDA ($mil) 12/2010 = 96

EBITDA ($mil) 12/2009 = 16

Net Income Reported Quarterly ($mil) = 76

Annual Net Income this Yr/ Net Income last Yr = 186.52

Cash Flow ($/share) 12/2011 = 2.88

Cash Flow ($/share) 12/2010 = 2.29

Cash Flow ($/share) 12/2009 = 1.51

Dividend 5 year Growth 12/2011 = N/A

Sales ($mil) 12/2011 = 472

Sales ($mil) 12/2010 = 145

Sales ($mil) 12/2009 = 26

Dividend history

Dividend Yield = 14.73

Dividend Yield 5 Year Average 09/2011 = 14.55

Annual Dividend 12/2011 = 3.42

Annual Dividend 12/2010 = 3.49

Forward Yield = 14.73

Dividend 5 year Growth 12/2011 = N/A

Dividend sustainability

Payout Ratio 09/2011 = 0.75

Payout Ratio 06/2011 = 0.85

Payout Ratio 5 Year Average 12/2011 = N/A

Payout Ratio 5 Year Average 09/2011 = N/A

Payout Ratio 5 Year Average 06/2011 = N/A

Change in Payout Ratio = N/A

Performance

Percentage Change Price 52 Weeks Relative to S&P 500 = -27.63

Standard Dev Target Price Estimate = 2.21

EPS Percentage Change F2/F1 = 3.4

Next 3-5 Year Estimate EPS Growth rate = 4

EPS Growth Quarterly (1)/Q(-3) = 131.96

Return on Investment 09/2011 = 14.98

Return on Investment 06/2011 = 15.43

Debt/Total Cap 5 Year Average 09/2011 = 9.22

Current Ratio 09/2011 = 0.03

Current Ratio 06/2011 = 0.03

Current Ratio 5 Year Average = 0.05

Quick Ratio = 0.03

Cash Ratio = 0.02

Interest Estimate Coverage 06/2011 = 2.63

Valuation

Book Value Quarterlytr ($/sh) 09/2011 = 16.62

Book Value Quarterlytr ($/sh) 06/2011 = 16.67

Annual EPS before NRI 12/2009 = 2.9

Annual EPS before NRI 12/2010 = 3.49

Annual EPS before NRI 12/2011 = 3.27

Price/ Book = 1.06

Price/ Cash Flow = 6.13

Price/ Sales = 4.31

EV/EBITDA 12 Mo = 5.24

P/E/G F1 = 1.67

Q1 Standard Dev/ Consensus = 0.03

P/E F1/ LT EPS Gr = 1.67

Company: Dynex Cap Inc (NYSE:DX)

Free Cash Flow = $70.6 million

Basic Key ratios

Percentage Held by Insiders = 8.58

Market Cap ($mil) = 509

Growth

Net Income ($mil) 12/2011 = 40

Net Income ($mil) 12/2010 = 29

Net Income ($mil) 12/2009 = 18

12 months Net Income this Quarterly/12months Net Income 4Q's ago = 35.08

Quarterly Net Income this Quarterly/same Quarter year ago = 49.35

EBITDA ($mil) 12/2011 = N/A

EBITDA ($mil) 12/2010 = 50

EBITDA ($mil) 12/2009 = 35

Net Income Reported Quarterlytr ($mil) = 14

Annual Net Income this Yr/ Net Income last Yr = 35.09

Cash Flow ($/share) 12/2011 = N/A

Cash Flow ($/share) 12/2010 = 1.21

Cash Flow ($/share) 12/2009 = 1.48

Dividend 5 year Growth 12/2011 = N/A

Sales ($mil) 12/2011 = 83

Sales ($mil) 12/2010 = 49

Sales ($mil) 12/2009 = 37

Dividend history

Dividend Yield = 11.92

Dividend Yield 5 Year Average 12/2011 = N/A

Dividend Yield 5 Year Average 09/2011 = 7.9

Annual Dividend 12/2011 = 1.09

Annual Dividend 12/2010 = 0.98

Forward Yield = 11.92

Dividend 5 year Growth 12/2011 = N/A

R-squared Dividend Growth 12/2011 = N/A

R-squared Dividend Growth 09/2011 = 0.42

Dividend sustainability

Payout Ratio 09/2011 = 1.07

Payout Ratio 06/2011 = 0.99

Payout Ratio 5 Year Average 09/2011 = 0.7

Payout Ratio 5 Year Average 06/2011 = 0.64

Change in Payout Ratio = 0.37

Performance

Percentage Change Price 52 Weeks Relative to S&P 500 = -12.3

Standard Dev Target Price Est = 0.75

EPS Percentage Change F2/F1 = -5.15

EPS Growth Quarterly (1)/Q(-3) = 110

5 Year History EPS Growth 09/2011 = 41.49

ROE 5 Year Average 09/2011 = 12.71

ROE 5 Year Average 06/2011 = 12.44

Return on Investment 09/2011 = 2.01

Return on Investment 06/2011 = 1.54

Debt/Total Cap 5 Year Average 09/2011 = 71.64

Debt/Total Cap 5 Year Average 06/2011 = 73.87

Current Ratio 09/2011 = 0.04

Current Ratio 06/2011 = 11.72

Current Ratio 5 Year Average = 67.19

Quick Ratio = 0.04

Cash Ratio = 0.02

Interest Estimate Coverage 09/2011 = 1.6

Valuation

Book Value Quarterlytr ($/sh) 09/2011 = 9.2

Book Value Quarterlytr ($/sh) 06/2011 = 9.16

Annual EPS before NRI 12/2007 = 0.4

Annual EPS before NRI 12/2008 = 0.91

Annual EPS before NRI 12/2009 = 1.02

Annual EPS before NRI 12/2010 = 1.41

Annual EPS before NRI 12/2011 = 1.03

Price/ Book = 1.02

Price/ Cash Flow = 5.25

Price/ Sales = 6.53

EV/EBITDA 12 Mo = 10.62

P/E/G F1 = N/A

Q1 Standard Dev/ Consensus = 0.06

R-squared EPS Growth 09/2011 = 0.71

P/E F1/ LT EPS Gr = N/A

Standard Dev Cons Current Quarterlytr = 0.02

Median Estimate Next Quarterlytr = 0.34

Number Annual st in Cons Quarterly3 = 6

Company: Crexus Investmt (NYSE:CXS)

Free Cash Flow = $34.19 million

Basic Key ratios

Percentage Held by Insiders = 0.76

Market Cap ($mil) = 845

Growth

Net Income ($mil) 12/2011 = 108

Net Income ($mil) 12/2010 = 12

Net Income ($mil) 12/2009 = -1

12months Net Income this Quarterly/12months Net Income 4Q's ago = 811.96

Quarterly Net Income this Quarterly/same Quarter year ago = 838.53

EBITDA ($mil) 12/2011 = 51

EBITDA ($mil) 12/2010 = 17

EBITDA ($mil) 12/2009 = -1

Net Income Reported Quarterlytr ($mil) = 42

Annual Net Income this Yr/ Net Income last Yr = 812.37

Cash Flow ($/share) 12/2011 = 0.53

Cash Flow ($/share) 12/2010 = 0.62

Cash Flow ($/share) 12/2009 = -0.06

Sales ($mil) 12/2011 = 106

Sales ($mil) 12/2010 = 15

Sales ($mil) 12/2009 = 0

Dividend history

Dividend Yield = 12.69

Dividend Yield 5 Year Average = 8.60%

Annual Dividend 12/2011 = 1.13

Annual Dividend 12/2010 = 0.58

Forward Yield = 12.69

Dividend 3 year Growth = 15.77%

Dividend sustainability

Payout Ratio 09/2011 = 0.95

Payout Ratio 06/2011 = 1.03

Change in Payout Ratio = N/A

Performance

Percentage Change Price 52 Weeks Relative to S&P 500 = -17.83

Standard Dev Target Price Estimate = 1.27

Average EPS Surprise Last 4 Quarterlytr = N/A

EPS Percentage Change F2/F1 = 2.31

Next 3-5 Year Estimate EPS Growth rate = 6

Standard Dev 3-5 Year Estimate EPS Growth rate = N/A

EPS Growth Quarterly(1)/Q(-3) = 1-120.00

5 Year History EPS Growth 12/2011 = N/A

5 Year History EPS Growth 09/2011 = N/A

ROE 5 Year Average 12/2011 = N/A

Return on Investment 09/2011 = 10.43

Return on Investment 06/2011 = 7.53

Debt/Total Cap 5 Year Average 09/2011 = 17.19

Current Ratio 09/2011 = 27.82

Current Ratio 06/2011 = 23.71

Current Ratio 5 Year Average = 47.02

Quick Ratio = 27.82

Cash Ratio = 5.9

Interest Estimate Coverage 09/2011 = 523.25

Valuation

Book Value Quarterlytr ($/sh) 12/2011 = N/A

Book Value Quarterlytr ($/sh) 09/2011 = 12.1

Book Value Quarterlytr ($/sh) 06/2011 = 11.96

Annual EPS before NRI 12/2007 = N/A

Annual EPS before NRI 12/2008 = N/A

Annual EPS before NRI 12/2009 = -0.06

Annual EPS before NRI 12/2010 = 0.63

Annual EPS before NRI 12/2011 = 1.61

Price/ Book = 0.91

Price/ Cash Flow = 20.79

Price/ Sales = 8.17

EV/EBITDA 12 Mo = 13.34

P/E/G F1 = 1.47

Q1 Standard Dev/ Consensus = 0.23

P/E F1/ LT EPS Gr = 1.47

Median Estimate Next Quarterly tr = 0.33

Number Annual st in Cons Quarterly3 = 8

Conclusion

As the markets are extremely overbought it would make sense to wait for a pullback before committing large sums of money to this market. The Fed has extended the low-interest window, and this should prove to be favorable for REITs. With a proper hedging strategy in place REITs can perform well even in a rising rate environment.

EPS, Price, EPS surprise charts obtained from zacks.com. Dividend history charts sourced from dividata.com. Free cash flow yield, income from continuing operations and revenue growth charts sourced from Ycharts.com. Earnings estimates and growth rate charts for sourced from dailyfinance.com. A major portion of the historical data used in this article as obtained from zacks.com.

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

Additional disclosure: This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies-let the buyer beware.

Source: Reasons To Be Bullish On Hatteras Financial Corp.