Why Insiders Have Loaded Up on This 9.2% Yielder
1 High-Yield Stock to Consider
No matter how talented a Wall Street analyst is, chances are they still don’t know about a company as well as that company’s own management. Being in the business every single day is what makes management the “insiders.”
What this means is that when making investment decisions, it’s of utmost importance to check not only analyst ratings, but also a company’s insider ownership. This is because at the end of the day, when management is willing to bet with their own money, it’s a more solid vote of confidence.
Case in point, insiders at Ladder Capital Corp (NYSE:LADR) are willing to put their money where their mouth is. As of September 30, 2017, management and directors own approximately $180.0 million worth of the company’s shares, or around 11.8% of Ladder’s market capitalization. (Source: “Investor Presentation,” Ladder Capital Corp, last accessed December 4, 2017.)
The most obvious reason why any investor would want to consider LADR stock is the generous payout. Ladder pays quarterly dividends of $0.30 per share. At today’s price, that translates to an annual dividend yield of 9.2%.
And unlike many high yielders that don’t really offer much in terms of dividend safety, Ladder Capital actually has more than enough resources to back its payout.
In the 12-month period ended September 30, 2017, the company generated core earnings of $1.45 per share while paying $1.20 of cash dividends per share. That gives a distribution coverage ratio of 1.21 times for quite a wide margin of safety.
The payout has been growing as well. Ladder Capital started paying quarterly dividends in April of 2015. In just over two years, the company has raised its quarterly dividend rate twice, first from $0.25 per share to $0.275 per share, and then to $0.30 per share. That’s a total increase of 20%. (Source: “Dividends,” Ladder Capital Corp, last accessed December 4, 2017.)
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Ladder’s rising dividends are backed by a solid business. Structured as a real estate investment trust, Ladder invests in both real estate mortgages and physical properties.
The company’s loan portfolio provides it with a steady stream of interest income. Since Ladder’s inception, it has never experienced any credit loss.
The company’s net leased commercial real estate portfolio, on the other hand, boasted a weighted average occupancy rate of 100% at the end of the third quarter of 2017. This provides Ladder with a predictable rental income stream on top of the company’s interest income.
The best part is that Ladder Capital Corp is well positioned for the rising interest rate environment. The company has a $2.2-billion floating rate balance sheet loan portfolio on the asset side, and $2.2 billion in fixed rate debt on the liability side. Management estimated that if the London Interbank Offer Rate, the benchmark interest rate at which banks borrow from each other, rises by one percentage point, Ladder Capital would generate $14.0 million in extra net interest income annually.
Bottom Line on This High-Yield Stock
A rock-solid business, a generous dividend policy, and the rising interest rate environment are likely some of the most important reasons behind management’s decision to purchase LADR shares. And since the stock gets a strong approval from insiders, maybe income investors should consider it too.