I have had my eye on Resource Capital Corporation (RSO) ever since the financial meltdown of 2008-2009. Why? Because, during this time period, while a lot of REITs were unable to continue paying dividends, RSO showed its strength by consistently paying a hefty dividend. As it stands now, that dividend is at approximately 15%.
Resource Capital Corp. had a very strong second quarter. Adjusted Funds from Operations were $0.26 per share diluted, and GAAP net income was $0.20 per share diluted, in both cases more than a 10% increase over the first quarter. We closed on over $212 million of new investments, including almost $66 million of new CRE loans. We paid a $0.20 cash dividend and our book value per share has increased since the end of 2011. We are continuing to build our asset generating activities and hope to accelerate their growth.
As for the dividend, the Company paid a dividend of $0.20 cents per share to its common stockholders during the second quarter. While the $0.20 cent dividend is down from the $0.25 cent dividend that the Company paid out last year, there is reason to believe that RSO may be in a position to increase the dividend in either the third or fourth quarter of this year. David Bryant the Company's CFO stated that the Company's AFFO payout ratio of approximately 78% "demonstrates our ability to cover the dividend from cash flow." Because REITs are required to distribute 90% of their taxable income into the hands of investors, RSO may therefore be in a position to increase its dividend later this year.
Any increase in the dividend would create a huge yield for investors. According to Yahoo Finance, RSO already has the highest dividend payout in its sector and with its most recent results, investors could see the dividend go even higher. While mortgage REITs such as RSO pay high yields, they borrow large sums of money at short-term rates, investing the proceeds in even more mortgage-backed securities. These leveraged portfolios produce a lot of income when short-term rates are well below the interest payments that mortgage REITs receive on their mortgage securities. Therefore, if short-term rates ever do rise, mortgage REITs such as RSO will not look as pretty.
Considering the near 15% current dividend as compared to the 4%-6% dividend for other REITs such as Investors Real Estate Trust (IRET),Pennsylvania Real Estate Inves (PEI) and Washington Real Estate Investment Trust (WRE), investors looking for yield should take a look at RSO now.
Additional disclosure: Nothing contained herein shall constitute financial, investment, legal and/or other professional advice. Investors buy and sell securities at their own risk. I am currently have no position in any stock mentioned in this article.