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10% Dividend Yield To Buy At 40% Below Book Value


  • When shares trade at a 40% discount to book value, they should have substantial flaws.
  • This REIT isn’t perfect, but it deserves a higher ratio.
  • The 10% dividend yield pays investors to wait for the price to recover.
  • We’ve traded these shares before, so we aren’t afraid to buy them when the discount gets big.
  • We bought shares late last week and you can still get the same price today.
  • Looking for a portfolio of ideas like this one? Members of The REIT Forum get exclusive access to our model portfolio. Learn More »

Girl on a blue background rejoices at her success

This REIT isn't perfect, but the 10% dividend yield pays investors to wait for the price to recover.

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Colorado Wealth Management is a REIT specialist who began his decades-long investment career in a family-owned realtor office before launching his own company and embracing his drive for deep-dive REIT analysis. He passed all 3 CFA exams. He focuses on Equity REITs, Mortgage REITs, and preferred shares.

Features of the group include: Exclusive REIT focus analysis, proprietary charts and data models, real-time trade alerts posted multiple times a month, multiple subscriber-only portfolios, and access to the service's team of analysts and support staff for dialogue and questions on the REIT space.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of AGNCO, CIM-A, ARR-C, DX-C, NRZ-D, AGNCP, MFA-C, NYMTZ, TWO-B, NYMTL, MFA-B, NRZ, SLRC, AAIC, PMT, MFA, GPMT either through stock ownership, options, or other derivatives. 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.

Colorado Wealth Management Fund and Scott Kennedy are supporting contributors for The REIT Forum. Our ratings and outlooks will often overlap. Any recommendation posted in this article is not indefinite. We closely monitor all of our positions. We issue Buy and Sell alerts on our recommendations, which are exclusive to our members. I have an indirect conflict of interest with ABR and STWD. Neither I, nor any contributor for The REIT Forum, will provide investment advice, reply to questions, or engage in discussions regarding these two mREIT stocks.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (50)

Landlord Investor profile picture
I’m only in the preferreds and took a closer look at their portfolio recently. My concern is their highest concentration is in office. Office has a very uncertain future and this management team has a knack for picking bad properties to lend against. Looks like they also plan to increase leverage from existing conservative levels.
cgm profile picture
WMC looks even better just based on the charts you have presented. (Lower price to book, higher earnings yield, higher dividend yield.) What is the problem with that one?
cgm profile picture
@cgm I took a look. Declining book value and dividend. Does not look good.
Mreits = yuck. Show me one with a positive 10 year chart and I’ll buy it.
@DadRuss72 Mreits aren’t for buy and hold investors.
@DadRuss72 That's like saying "show me 10 years of stable and gently rising interest rates." Like oil and gas, there are times to buy and times to shop elsewhere.

Dropping rates typically cause BV losses for mreits due to refinancing. Rising rates are a much more complex beast.
MillionsDollarMan profile picture
Chasing yield in a rising rate environment is foolish.
Opened a moderate position a few days ago based on CO and Scott’s trade/analysis. Great moves today on a number of my mREIT holdings!

Long: AAIC, DX, NRZ, NRZ.D and now GPMT (again).
Tim Cunningham profile picture
Congrads on being #1.
Clearly you know what you are doing.

YellowLab1 profile picture
@Colorado Wealth Management Fund Just a note here to share I reopened a sizable position in GPMT yesterday based on your and @Scott Kennedy ’s research and timely notifications of your own purchases of GPMT to all in The REIT Forum. That was based off your research. My timing was mostly luck as I got in at $9.55 a share. If only my returns from GPMT could be even 1/4 of what they were last time I entered the name based on your and Scott’s timely recommendation for entering and then selling.
Thanks for all your hard work helping us in the service.
@YellowLab1 Well, you had a pretty nice first day of re-ownership!
Colorado Wealth Management Fund profile picture
@YellowLab1 Great entry price. That's better than I did!
Retire2020 profile picture
Hi CWMF, Is the D/E ratio of more than 2 a concern for GPMT?
Colorado Wealth Management Fund profile picture
@Retire2020 It's common for a mortgage REIT. Even for commercial mortgage REITs (like GPMT) which use lower leverage than residential mortgage REITs, being above 2 is very normal. If they were below 2, that would've been a bigger area for discussion.
Retire2020 profile picture
@Colorado Wealth Management Fund Thanks for your explanation. All the best.
Colorado Michael,

Thanks for your analysis on GPMT, scooped up a partial position before shares are up $0.50 today, you move markets! I had noticed the wide discount spread from BV for several months. AGNC, DX and NRZ also up significantly today. Thanks for sending the cool front!

Dividend Digging Armadillo
Baja Oklahoma
Colorado Wealth Management Fund profile picture
@Dividend Digging Armadillo Thanks and congrats on getting in before the big rally hit.
A year ago someone else was pumping this as undervalued when it was at $15.17. Seems like that went very well.
Colorado Wealth Management Fund profile picture
@thehip Key part "someone else". I can't take the heat for writers who are not part of my service.


Wow, you called it. That author pumped it right at the top.
It's not someone affiliated with this author, or his REIT service.
What do you think of the series A preferred?
Colorado Wealth Management Fund profile picture
@deviruchi Interesting. They've been on the back burner for adding to coverage for a while. It's hard to add new shares to coverage when the market is exciting. Easier to get the time if we don't have as many other developments requiring attention to find the bargains.
@Colorado Wealth Management Fund I had the same question. The yield on the preferreds in over 8% but I can't find much on call and liquidation details. Will have to dig into their 10K.
Greg_Maryland profile picture
Nice note on GPMT.
I'm long the preferred (GPMT-A) and suggest others give it a look as it resets with a nice spread (SOFR plus 5.83) and has a floor of 7%
@Greg_Maryland Agreed - I'm long both common and preferred, and I definitely think that 7% floor feature on the reset is something that a lot of investors overlook.
@Greg_Maryland we shouldn't talk too much about the preferred, as I'd like to pick up more shares at a nice discount to par...
Thought they had a weak mgmt team but not sure if that's changed recently? Don't own it yet but might revisit at that BV discount
Colorado Wealth Management Fund profile picture
@Workinhard It wouldn't be my first pick if I were drafting teams, but I've owned worse. Also owned GPMT and TWO a few times already.
AnonB profile picture
REITs in general are the worst investments in the market, just look at their 5yr charts and you'll see decreasing book value, decreasing dividends and decreasing share price, there is no reason to own them.
Colorado Wealth Management Fund profile picture
@AnonB You know lumping all REITs together is almost as nonsensical as lumping all stocks together?
AnonB profile picture
@Colorado Wealth Management Fund Sure like $O doesnt deserve to be lumped but all you have to do is look at a 5 year chart to know this is a dud as is most REITs (specifically mREITs)
Colorado Wealth Management Fund profile picture
@AnonB Hmmm. That 5-year price chart would've made GPMT look much better back when it was at the 52-week high. I'm all for considering the long-term trend as one factor in evaluating a company. The market gets it wrong in the short term, but it rarely stays dramatically wrong for a long time. However, I'm not looking to hold shares forever. I'm looking to catch a significant change in the price-to-book ratio.
Wouldn’t these types of REITs do worse in a rising interest rate environment?
Colorado Wealth Management Fund profile picture
@Dmill00 Some do. Others are not so impacted. A few can benefit. The way rates rise (especially the speed) can have a large impact. I did an article once that I may need to start linking regularly. It demonstrated that knowing the future yield curve alone would not have allowed an investor to pick when to buy or sell mortgage REITs, though knowing book value has an extremely strong record of success.
LostinShalimar profile picture
@Colorado Wealth Management Fund And I'll assume that the most efficient method of obtaining a fair BV is by subscribing to your service?
Colorado Wealth Management Fund profile picture
@LostinShalimar Most efficient method to get good estimates, yes. You can do it yourself, but it takes access to other tools that cost as much or more and a huge amount of experience and effort to build the relevant models and know how to work them. It it was easy, it wouldn't produce much alpha.

Why don't hedge funds make these trades? They do. But they use our service because it is vastly cheaper than trying to do it in house.

Why don't other analysts do it? They do, but they tend to be much slower to update, less accurate on ratings, and don't put a portfolio of their own money on the line.

You're welcome to try the service. Ask our members if we are worth our cost.
I see leveraged commercial mortgages and I run the other way. That’s probably what is creating the opportunity for investors willing to do their homework.
Colorado Wealth Management Fund profile picture
@Rule of 72t I agree. I don't love the asset class. I just see a REIT that should trade at a much smaller discount and figure I'll turn a profit off the price recovering.
bk14857 profile picture
good article CWM thanks
Landlord Investor profile picture
When do they start seeing significant benefits from higher rates on their floating loans leading to a possible div raise?
@Landlord Investor Until they fully retire the high cost debt related to the PIMCO loan (and they still have $50M outstanding), I don't think they will consider raising the dividend.
Landlord Investor profile picture
@RoHughes59 Even if they don’t raise, if they see a 20% increase in income from higher loan resets, that will be a catalyst to narrow the discount.
@Landlord Investor Agreed - I like and own the stock, although at the current price I am underwater. But they have had difficulty growing the loan portfolio recently because of having to resolve a few loan defaults (and I think that all but one of those are now behind them) plus repaying the PIMCO loan, which I seem to recall reading somewhere had an all-in cost of 11%, so very high cost debt to say the least.

I am hopeful they take care of the last $50M in Q2, and that they can start to show some growth in the latter part of the year.
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