Now how to pick a REIT. Or any long term investment stock for that matter.
Since the concern for long term investing in a divvy stock or REIT in particular, is maintaining the same or increasing payout. Performance is important!
Is the company growing and increasing EPS, Earnings per Share? If they fail to do this, they will need to reduce dividend payouts. Ps; to become a REIT the company must return 90% of earning to investors. So EPS can be the #1 factor to payout levels the board determine to give out. Others can be cash flow requirements, or new business investment directions. If the company has a large LT Debit/EQ or has recently had a public offering which increase the float. Cash flow needs maybe cause them to lower payout also.
Lets discuss some fundamentals to look at in choosing REIT.
LT Debit/Eq; this is the ratio of long term debt to the basic company value. How much is management borrowing to invest in growing the business.
The higher this number the higher the risk the company is taking.
REIT Examples: New York Investment Trust NYMT LT Debit/Eq is 10.8 and ARMOUR Residential REIT, Inc. AEE is 0. Obviously NYMT borrows much more then ARR to grow it's business. So NYMT's business risk level is very high. Many investment firms will consider this to high and not recommend it to clients or invest them selves. But is management putting the money to good use? Wants the ROE.
ROE is return on equity. Return on equity measures a corporation's profitability. Is management using it's money well. And one of the most important consideration to a successful company is managements ability.
REIT Example: NYMT ROE is 16.9 and ARR -1.9. Obviously NYMT has a much better record of producing profits then ARR.
Evaluation for the 2 extremes I choose is ARR takes little risk but management doesn't preform well. On the other hand NYMT take large risk but produces strong results.
Thus my choice would be bet on a strong management team which take higher risk. While many investment firms just hate risk. And would choose neither. And look for something in the middle of risk & performance.
Say CIM with a low LT Debit/Eq number and high ROE number (1.43 & 16) would look better to them.
Now we have NYMT & CIM lets look deeper. NYMT is a risk taker but both managements about the same. So lets see how their dividend return history is. We'll use the Growth Rate 5yr Avg since that's our timing. CIM's Dividend Growth Rate 5yr Avg: = -1.83% while NYMT's is +3.33%.
NYMT has increase payout, while CIM has reduced it. And 1 of the main thing we want is the dividend payout to remain the same and price to reduce as this increases our ROI.
NYMT is winning over CIM to this point.
Now on to expected future. I say do what the big guys do. They have teams of annalists evaluating companies much deeper then we could. And there are two fundaments which I gauge for this.
Instructional investment amount, short interest increase/decrease. Who has the most big money interest and who is loosing the most future interest. Looking for trend.
NYMT Instructional investment 29% CIM 59%; NYMT short interest increase/decrease NYMT -16% CIM +1%. This says big money likes CIM best, but they seem to be changing their minds. NYMT has reduced it's short interest, while CIM's has increase slightly.
Actual short interest is NYMT 10.9% (very negative) CIM 1.2% (positive). With NYMT having a 15% YTD price fall and CIM 7%. It seems big money feels safe with CIM and NYMT is reaching it's price direction decline bottom. Buying op's fading!
Eval: the future is unchanged for CIM with more big money there. And NYMT had problems which are ending.
CIM won the future area. Keeping in mind this area only help with expectations of profitability, seen in price direction and ownership levels. Not history of maintaining payout levels.
Wrap up; Both NYMT & CIM are good candidates for long term dividend investment. NYMT with a 16.5% divvy @ today price and CIM with 13.9. NYMT has a higher risk but better preforming management and a better over all history of maintaining the payout level. Big money likes CIM and expected a price decline at NYMT which has happened.
As I said NYMT just gave a huge buying op, $7.50 to $6.50, 14 to 17% payout. But CIM is still the long term favorite with big money and a good investment. Probably because money managers don't like risk! CIM was my favorite REIT several years ago. When some things ( late Q reports) changed, shifting me to NYMT.
Hope the info in the last 2 post helps present & future investors to understand long term investment techniques & reasoning.
Not a recommendation to buy either, educational only.
