Published:
October 17, 2007
Centerline Holding (NYSE: CHC, $14.70) --
Centerline 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
11.4%.
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
current $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
1.2 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.
Carla Pasternak
Editor
High-Yield
Investing
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