|
Published: January 8, 2010
We’ve read all the headlines and listened
to the news about the malaise in the real estate market. Some
might even believe we’ve heard it ad nauseum.
Does this market have more downside risk? Possibly. Could we be
near or at a bottom? Maybe. But as every investor knows, picking
a bottom in any asset is nearly impossible.
But what if a stock, beaten down from a high of $18.78 to a low
of $1.50 is now showing upward movement? And what if this stock,
trading these days at about $5.00, actually pays an enticing
dividend of 20%?
Resource Capital Corporation (NYSE: RSO), a real estate
finance company that invests in commercial real estate-related
assets and, to a lesser extent, in commercial finance assets, is
a real estate investment trust (REIT).
Resource Capital's cash dividend now stands at a quarterly
payment $0.25 per share. To maintain its REIT status, a company
must distribute 90% of its taxable income to shareholders --
which is why many REITs pay big dividends.
While the company has experienced several tough quarters,
results in the most recent three-month period ended Sept. 30 are
promising. The company earned $0.47 per share, up from $0.00 in
the same quarter of 2008. At this level, the company can afford
its dividend payments. An analyst with FBR Capital Markets that
covers Resource Capital expects the company to earn $0.28 in the
2009 fourth quarter, compared with a loss of $0.29 a year
earlier. For the full 2010 year, expectations for the company
are to earn $1.03 a share, compared with an estimated $0.31 for
2009.
Like all REITs, Resource Capital’s future results will depend
on market conditions and financing availability, as well as
defaults and bankruptcies by its borrowers and those of its
underlying investments. And there's good news on these fronts.
The economic woes that have plagued California, in which RCC has
38.7% of its collateral, have begun to subside. Exports from
California ports are rising, and the median selling value for a
home in October 2009 was 21% higher than the low point in
February 2009. The commercial real estate market is expected to
turn around by 2011, and the demand for office space, in
particular, should rise as the labor markets recover.
On the financing front, in December the company had a public
offering of 10 million shares priced at $4.50, with proceeds
approximated at $42.5 million. Indeed, the offering went well.
Some research analysts even upgraded the stock to "outperform,"
and shares gained +15% in the following trading week.
Worth mentioning is that recent SEC filings have shown that
insiders have been buying RSO. Earlier this month, 200,000
shares were purchased by CEO and President Jonathan Z. Cohen,
while his father, Edward E. Cohen, chairman and director, also
purchased 200,000 shares. Both SEC filings show the shares were
purchased at $4.50 for the Arete Foundation, a charitable
foundation for which father and son both serve as trustees.
This 20% yield is not for investors who are risk averse, as many
questions regarding this company’s future still linger and hinge
upon a recovery in other sectors of the economy. But for
investors who can tolerate some risk, the 20% yield should be
very enticing.
-- Mary Lou Byrd
Contributor
Street
Authority
P.S. Just two years ago, StreetAuthority's co-founder and Chief
Investment Strategist Paul Tracy started an unusual investing
program. It loads his portfolio with safe and powerful income
creatures paying high, double-digit yields. What's interesting
is that this program is already paying him more than $2,700 a
month. In fact, his monthly payments are growing and will
soon top $100 per day or $3,000 per month. If you want to
transform your own portfolio into a daily income machine, just
like Paul has,
here's what to do... |
