Last week, I covered MFA Financial (NYSE: MFA), a mortgage real estate investment trust (REIT) with a double-digit yield that I determined was unsafe.
Today, I’m looking at another mortgage REIT that, while its yield is lower, is considerably safer.
I wrote about Ladder Capital in October of last year. At the time, the stock received a “B” rating for dividend safety.
I pointed out at the time that its $117.5 million in net interest income (NII) allowed it to easily pay $100 million in dividends in 2017.
While there were no NII estimates going forward, revenue and profits were expected to increase, which gave me confidence that NII was likely going to as well.
NII is a measure of cash flow used by mortgage REITs. It is the difference between how much the companies pay in interest to borrow money and how much interest they earn lending the funds to mortgage holders.
My confidence was well-placed. Ladder Capital’s NII for 2018 came in at $150.5 million, while it paid out $122.8 million in dividends.
That allowed the company to pay a special dividend of $0.23 in November of last year to go along with the $0.34 per share regular dividend.
That $0.34 per share regular dividend was an increase from $0.325 the previous quarter, and it marked the fifth time in five years Ladder Capital had raised its dividend.
Ladder Capital has paid special dividends three times since it began paying regular dividends in 2015.
There are no estimates for NII in 2019, but unlike last year, this year, revenue and profits are expected to decline. That suggests NII may follow as well.
In the first quarter, the spread between the rates that Ladder borrows and lends shrunk. If the results are lower in 2019, that is likely the culprit.
I expect NII to decline this year, which concerns me a little. But considering the company has a short but solid track record of annual dividend increases and has comfortably covered the dividend in the past, I’m willing to give it the benefit of the doubt.
Ladder Capital reports earnings this afternoon, so it’s possible that management will comment on the affordability of its dividend or reveal that earnings results are drastically different than what was expected.
If that occurs, I’ll update this column.
But barring any surprises, the dividend is fairly safe.
Dividend Safety Rating: B
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[adzerk-get-ad zone="245143" size="4"]About Marc Lichtenfeld
Marc Lichtenfeld is the Chief Income Strategist of Investment U’s publisher, The Oxford Club. He has more than three decades of experience in the market and a dedicated following of more than 500,000 investors.
After getting his start on the trading desk at Carlin Equities, he moved over to Avalon Research Group as a senior analyst. Over the years, Marc’s commentary has appeared in The Wall Street Journal, Barron’s and U.S. News & World Report, among other outlets. Prior to joining The Oxford Club, he was a senior columnist at Jim Cramer’s TheStreet. Today, he is a sought-after media guest who has appeared on CNBC, Fox Business and Yahoo Finance.
Marc shares his financial advice via The Oxford Club’s free daily e-letter called Wealthy Retirement and a monthly, income-focused newsletter called The Oxford Income Letter. He also runs four subscription-based trading services: Technical Pattern Profits, Lightning Trend Trader, Oxford Bond Advantage and Predictive Profits.
His first book, Get Rich with Dividends: A Proven System for Earning Double-Digit Returns, achieved bestseller status shortly after its release in 2012, and the second edition was named the 2018 Book of the Year by the Institute for Financial Literacy. It has been published in four languages. In early 2018, Marc released his second book, You Don’t Have to Drive an Uber in Retirement: How to Maintain Your Lifestyle without Getting a Job or Cutting Corners, which hit No. 1 on Amazon’s bestseller list. It was named the 2019 Book of the Year by the Institute for Financial Literacy.
