After Resuming Dividends, This Beaten-Down Stock Yields 11.2%
Should Investors Consider This High-Yield Stock?
No one likes dividend cuts. When a company reduces its dividend, not only will shareholders get a pay cut, but also the stock could take a tumble on the bad news.
And that scenario happened often due to the COVID-19 pandemic this year. With numerous companies experiencing or expecting huge declines in their business, management had little choice but to slash the dividend. Payout cuts were especially common among companies that were paying oversized dividends in the first place.
Take a look at Granite Point Mortgage Trust Inc (NYSE:GPMT), for instance.
As a company that owns a portfolio of commercial mortgage loans, Granite Point Mortgage Trust Inc was one of the higher- yielding names in the market before the coronavirus outbreak.
And then, on March 25, 2020, its board of directors decided to suspend the quarterly dividend to conserve available liquidity, citing “unprecedented market conditions and uncertainty caused by the COVID-19 pandemic.” (Source: “Granite Point Mortgage Trust Inc. Provides Company Update Regarding Impact of COVID-19,” Granite Point Mortgage Trust Inc, March 25, 2020.)
In other words, it was not just a reduction in dividends; the company stopped paying completely.
GPMT stock also plunged in the market sell-off. But I should point out that, in this case, the tumble occurred before the dividend suspension, and that the company’s shares actually bounced back quite a bit after the announcement.
Still, GPMT stock is far from making a full recovery. And if you were looking for dividends, this commercial real estate finance company wouldn’t be on your radar…until now.
Granite Point Mortgage Trust Inc: Turnaround in the Works?
On September 28, Granite Point Mortgage Trust’s board of directors declared a quarterly cash dividend of $0.20 per share. The dividend will be paid on October 19, 2020 to shareholders of record as of October 8. (Source: “Granite Point Mortgage Trust Inc. Announces Third Quarter 2020 Common Stock Dividend and Business Update,” Granite Point Mortgage Trust Inc, September 28, 2020.)
Investors liked the news. On the trading day following the press release, Granite Point stock surged 4.3%.
Of course, the payout is still quite a bit lower than before: last year, the company had a quarterly dividend rate of $0.42 per share. But resuming dividend payments is still a big deal for the company. And because GPMT stock is trading at a much cheaper price than before, it remains an ultra-high yielder.
With the company’s shares priced at $7.15 apiece, the new dividend rate translates to an annual yield of 11.2%.
Obviously, dividend safety is a major concern when approaching high-yield stocks these days, especially in the case of companies that have slashed their payouts before. So, it’s important to check out the financials.
In the first quarter of 2020, Granite Point Mortgage Trust Inc generated core earnings of $0.32 per share. In the second quarter, core earnings came in at $0.25 per share. (Source: “Granite Point Mortgage Trust Inc. Reports Second Quarter 2020 Financial Results and Post Quarter-End Update,” Granite Point Mortgage Trust Inc, August 10, 2020.)
Unsurprisingly, those numbers were down year-over-year. However, they are in excess of the company’s new quarterly dividend rate of $0.20 per share (note that Granite did not pay any dividend for the first or second quarter).
Furthermore, Granite Point has substantially enhanced its liquidity over the last few months. At the end of June, the company had $56.0 million in cash. By September 28, the cash balance had grown to approximately $357.0 million.
It also helps that the loans in the company’s portfolio are performing.
In the latest investor update, Granite Point’s president and chief executive officer Jack Taylor said, “While significant uncertainty persists and the overall economy and real estate market continue to be negatively affected by the COVID-19 pandemic, our portfolio has performed well with over 99% of our borrowers making their August and September contractual loan payments.”
Bottom Line on Granite Point Mortgage Trust Inc
Granite Point Mortgage Trust Inc is not the perfect dividend stock. But given its current financial position and resumed dividend payments, GPMT stock now deserves the attention of yield hunters.