Stocks were up this week, ahead of today’s inflation data. The gains reflected investor optimism that inflation will proceed to reduce – a sentiment that was backed up by the actual numbers.
The speed of price increases for December got here in at a 0.1% decrease month-over-month, and at a rise of 6.5% annualized. These were exactly in-line with the forecasts, and mark a slowing down of inflation going forward.
The slower pace is sweet news. With this scale-back – inflation’s annualized increase is well down from its 40-year high of 9% registered in June 2022 – investors and economists see more reason to consider that the Federal Reserve may even decelerate its move toward rate of interest hikes. While Fed Chair Jerome Powell has already made it clear that the central bank will prioritize battling inflation, and can keep rates higher, longer, as needed, it’s hoped that the Fed will back off from the recent rapid pace of rate of interest hikes. We’ll see for certain later this month – the Fed’s Open Market Committee, which sets the important thing funds rate, is scheduled to satisfy on Jan 31/Feb 1.
Regardless of the Fed does, investors should search for defensive moves to guard themselves – and that’s going to attract us to dividend stocks – and particularly the high-yield dividend stocks. We’ve used the TipRanks database to look up two dividend payers that provide yields that beat the present inflation rate. And even higher, they each have a ‘Strong Buy’ consensus rating from the broader analyst community. Let’s take a more in-depth look.
Ladder Capital Corporation (LADR)
We’ll start with Ladder Capital, an actual estate investment trust (REIT) focused on the industrial property market. The corporate’s asset portfolio is valued at roughly $5.9 billion, and consists primarily of business real estate loans and versatile capital solutions. Ladder also owns and manages industrial properties, with a bent toward net lease industrial contracts. The corporate, which has been in business since 2008, describes it’s ‘core competency’ as underwriting industrial real estate credit.
Within the last quarter reported, for 3Q22, Ladder showed better-than expected results, with the pre-tax GAAP income coming in at $31.3 million, or 23 cents per diluted share. The corporate had a net interest income of $28.89 million, up greater than $6 million from the previous quarter. At the identical time, real estate operating income slipped about $1 million q/q, to $27.68 million – a sign of the final economic situation pushing up the price of business.
Of particular interest to dividend investors, nevertheless, Ladder’s distributable earnings – which directly support the dividend payment – were reported in Q3 at $34.3 million, or 27 cents per share. This was actually down quarter-over-quarter; the Q2 distributable EPS had been reported at 34 cents – even though it was almost double the 3Q21 results of 14 cents per share.
In mid-December, Ladder declared its next dividend payment, to paid out on January 17. The common share dividend is about at 23 cents per share, fully covered by the distributable EPS. At this rate, the dividend annualizes to 92 cents per common share and provides a yield of 8.55%. This yield is greater than 4x the typical found amongst S&P-listed corporations – and beats inflation by nearly 2 points, ensuring an actual rate of return for investors.
Keeping tabs on LADR for JMP Securities, analyst Steven DeLaney takes a bullish view of the stock. He believes the corporate is well positioned to survive whatever difficulties the economy has in store – and to bring solid results for investors.
“Ladder began lending more aggressively in 2Q21 when market conditions became attractive following the initial COVID disruption in early 2020, but the corporate is now slowing lending once more because the economic picture has deteriorated. The corporate has increased liquidity and it ought to be able to benefit from any market opportunities that would emerge in the primary half of 2023 because the Fed finishes its current tightening cycle,” DeLaney noted.
“We consider LADR shares offer a horny investment opportunity over the subsequent 12 to 24 months as the corporate executes on its primary goals of core transitional loan portfolio growth and harvesting of gains on seasoned net lease real estate assets, which should lead to improving distributable earnings through 2023,” the analyst summed up.
Tracking forward from this bullish stance, DeLaney gives the stock an Outperform (i.e. Buy) rating, with a $12.50 price goal to suggest a one-year upside potential of 15%. Based on the present dividend yield and the expected price appreciation, the stock has ~24% potential total return profile. (To observe DeLaney’s track record, click here)
Overall, Ladder has picked up 4 recent reviews from the Street’s analysts, and these reviews include 3 Buys and 1 Hold (i.e. Neutral) – for a Strong Buy consensus rating. The stock is selling for $10.86 and its $12.63 average price goal implies a 16% gain on the one-year time horizon. (See LADR stock forecast)
Rithm Capital (RITM)
Next up is Rithm Capital, one other real estate investment trust. Rithm underwent a restructuring in the summertime of 2021, and now operates as an internally-managed REIT. The corporate works at each the mortgage lending and the mortgage services ends of the business, and its portfolio includes loan originations, real estate securities, and each residential and industrial property mortgage loans. The corporate can be invested in MSRs, which make up about 26% of the portfolio.
Rithm’s total portfolio currently stands at $7.53 billion in net equity, and the corporate manages $35 billion in assets. In its last reported financial results, for 3Q22, Rithm reported greater than $153 million in earnings available for distribution, for 32 cents per common share. This figure – which backs up the dividend payments – was up ~5% y/y, from $145.8 million, and simply covered the $118.4 million in common share dividends paid out in Q3. The following dividend, of 25 cents per common share, was declared at the tip of December for a January 27 payout. The payment annualizes to $1, and yields 11.3%, over 5x the typical on the broad markets – and almost 5 points above the official readout for December’s annualized rate of inflation.
All of this brought Rithm to the eye of B. Riley analyst Matt Howlett, who says of the corporate: “Although the present macro backdrop presents challenges, RITM has cut costs, established rate of interest hedges, and de-risked the balance sheet. We’re confident in CEO Nierenberg’s ability to guard the corporate during a downturn while positioning it to benefit from recent opportunities. With RITM trading at 0.74x reported book value, we consider the present valuation represents a horny entry point. We also expect dividend coverage through our modeling horizon (2024).”
To this end, Howlett gives RITM a Buy rating to associate with this bullish outlook, and quantifies it with a $12 price goal to point potential for 36% upside within the 12 months head. (To observe Howlett’s track record, click here)
Overall, 7 Wall Street analysts have weighed in on RITM stock recently and their reviews are unanimously positive, backing up the stock’s Strong Buy consensus rating. RITM has a median price goal of $11.71, suggesting a ~33% one-year gain from the present trading price of $8.82. (See RITM stock forecast)
To search out good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this text are solely those of the featured analysts. The content is meant for use for informational purposes only. It is rather necessary to do your individual evaluation before making any investment.