Try Centerline Holding For a Robust, Double-Digit Yield

Centerline Holding (NYSE: CHC) ($13.81) is a 34-year-old real estate finance company, formerly known as CharterMac. CHC is involved in a multitude of financial businesses. The firm lends, invests, and manages capital, with a focus on the commercial real estate market.

Among its activities, CHC buys tax-exempt first mortgage bonds issued by local governments and agencies, manages a variety of funds that invest in mortgage-backed securities, and underwrites multi-family mortgage loans for building developers.

The company has paid regular dividends at an increasing rate since 1997. Payouts have risen an average +6% a year over the past five years. The current quarterly payout of $0.42 per share equates to $1.68 per share annually. At current levels, CHC yields a hefty 12.2%.

With dividends of $98.6 million and free cash flow of $110 million, the firm has paid out just under 90% of its cash flow, a level sustainable over time.

CHC traded as high as $21.87 per share this past January, but then proceeded to fall to as low as $10.35 when the stock was tainted with the subprime slime. President and CEO Marc Schnitzer finally put the misconception of subprime exposure to rest recently by stating, "Centerline does not have any single family or subprime exposure, whatsoever."

CHC has since rebounded dramatically from its summer lows. It's worth noting that company insiders have been heavy buyers of the stock lately. In roughly the last six months, insiders have scooped up almost 963,000 shares -- more than ten times what they have sold. In August and September -- well after the credit crunch was front-page news -- Director Nathan Gantcher added nearly 200,000 shares to his already substantial holdings to bring his total ownership to 458,000 shares. Many of his purchases were made in the $15 range. Other directors have shown similar faith.

Centerline is not without risks. While the credit crunch seems to be easing, unexpected skeletons in the financial closet may still emerge from this sector. That could cause numerous difficulties in the firm's businesses. And while it is often a positive signal, insider buying is not bulletproof. Gantcher, for example, also bought stock in June when the shares were trading above $19!

Even so, with Centerline trading at an attractive valuation of just 1.0 times book value and the firm likely to sustain its lofty dividend, downside risk seems limited.

Action To Take: Centerline is an attractive stock for more aggressive investors who wish to capture a robust, double-digit yield and are willing to gamble the summer credit crunch does not again rear its ugly head.

Disclosure: none

Comments

[User 111660:]

Nice call.

2008 Jan 16 09:24 PM

[stock owner:]

My stock has droped from $20 to $2.50 per share I have a big loss in your stock.What are you doing to recover my loss ?
[e-mail]

2008 May 28 05:39 AM