Great Ajax Corp: This 9% Yielder Keeps Raising Its Payout
A Rare High-Yield Dividend Growth Stock
In today’s market, most ultra-high yielders achieved their status for a very simple reason: a downturn in their share price.
Think about it: at any given cash dividend amount, a company’s dividend yield moves inversely to its stock price. So if a company was yielding three percent before and its share price got halved, its yield would double to six percent, even though it never changed its dividend policy.
So when you see a company offering investors a nine-percent yield, it’s only natural to ask whether that yield is just a byproduct of terrible share price performance.
Well, in the case of Great Ajax Corp (NYSE:AJX), the answer is “no.” Let me explain.
Great Ajax Corp is a real estate investment trust (REIT) headquartered in Beaverton, Oregon. With a market capitalization of just under $250.0 million, the company rarely makes headlines in the financial media. However, AJX stock does stand out due to its yield. Trading at $13.34 apiece, Great Ajax Corp has an annual dividend yield of nine percent.
Here’s the neat part: unlike those ultra-high yielders with plunging share prices, Great Ajax Corp stock stayed relatively flat since its initial public offering in February 2015. The company’s share price had some fluctuations, but it never shot through the roof or dropped to the floor.
So how on Earth did the company manage to offer a yield approaching the double digits? Well, it’s all about payout increases.
You see, when Great Ajax Corp went public, its first quarterly dividend payment was $0.18 per share. Since then, the amount has only been increasing. With its current quarterly dividend rate standing at $0.30 per share, AJX stock’s payout has grown by 66.7%. (Source: “Great Ajax Corp. Dividend Date & History,” Nasdaq.com, last accessed July 24, 2018.)
AJX Stock Dividend History
The above chart shows Great Ajax Corp’s dividend history for each year after it went public.
Now, because Great Ajax Corp is a relatively new name, its dividend history, although impressive, looks a bit short. Adding in the fact that AJX stock offers a yield higher than the vast majority of companies trading in today’s market, you might be wondering whether it actually makes enough money to cover those payouts.
Fortunately, the answer is “yes.”
To see whether Great Ajax Corp’s dividend is safe, we have to first understand how the company makes money. As I mentioned earlier, Great Ajax Corp is a REIT. But rather than owning physical properties, the company focuses on mortgage loans secured by single-family residences and single-family properties. At the same time, Great Ajax Corp also invests in loans secured by multi-family residential and commercial-mixed-use retail/residential properties.
What’s more interesting, though, is that the company has a special focus on reperforming loans. When a borrower was behind on payments by at least 90 days, but has later resumed making payments, that loan is classified as a “reperforming loan.”
Just by looking at the definition, reperforming loans do not seem like the safest type of investments. However, because of the riskier nature of these loans, Great Ajax Corp can acquire them at substantial discounts. For instance, in the first quarter of 2018, the company purchased $17.6 million worth of reperforming loans, with an aggregate unpaid principal balance of $19.7 million. The underlying collateral value of those loans totaled $32.4 million. (Source: “First Quarter Investor Presentation,” Great Ajax Corp, last accessed July 24, 2018.)
Great Ajax Corp: Maintaining Strong Dividend Coverage
Purchasing loans at good prices allowed the company to earn an oversized interest income stream. In the first quarter, Great Ajax Corp’s portfolio achieved an average loan yield of 8.6%.
So, are these returns large enough for the company to meet its dividend obligations? Well, in 2017, Great Ajax Corp generated diluted earnings of $1.53 per share. Since the company declared and paid total dividends of $1.13 per share for the year, it had a payout ratio of 73.9%. (Source: “Great Ajax Corp. Announces Results For The Quarter Ended December 31, 2017,” Great Ajax Corp, March 6, 2018.)
In the first quarter of 2018, the results were equally impressive. Great Ajax Corp’s earnings came in at $0.38 per share. Again, the amount easily covered its quarterly dividend payment of $0.30 per share. (Source: “Great Ajax Corp. Announces Results For The Quarter Ended March 31, 2018,” Great Ajax Corp, May 1, 2018.)
Will AJX Stock Increase Its Dividend?
Don’t forget that in order for Great Ajax Corp to maintain its REIT status, it must distribute most of its profits to shareholders in the form of dividends. Therefore, if the company keeps earning oversized profits, it could dish out bigger dividend checks.
Now, keep in mind that AJX stock last raised its dividend in August 2017, so it has already made four dividend payments of the same amount. If the company wants to pursue an annual payout increase schedule, another dividend hike could be in the works.
Ultimately, a safe nine-percent yield is already quite impressive in today’s market. Adding in the potential of another dividend increase, AJX stock looks like an attractive income opportunity.