New York Mortgage Trust Inc: Why This 13.3% Yield Deserves a Second Look
NYMT Stock Offers a Jaw-Dropping Payout
For investors looking for big capital gains, New York Mortgage Trust Inc (NASDAQ:NYMT) once didn’t seem to provide much. A year ago, the stock was trading around $6.00 per share. Today, it’s at $6.02.
Still, while NYMT shares did not shoot through the roof, the company did provide investors with some pretty serious returns through dividends.
If you bought NYMT stock a year ago and held it until today, you would have collected four quarterly dividends of $0.20 per share, totaling $0.80 per share. Compared to the company’s $6.00 share price back then, that’s a yield-on-cost of 13.3%.
The neat thing is, because New York Mortgage Trust Inc is trading at about the same level as it did a year ago and pays the same quarterly dividend of $0.20 per share, NYMT stock still offers that jaw-dropping 13.3% annual dividend yield to today’s investors.
The big question, of course, is whether the company can make enough money to cover that payout. In this day and age, ultra-high-yielders are not known for their dividend safety and dividend cuts can be quite common. And, as we have seen plenty of times, buying a dividend stock before it reduces its payout can turn out to be a very expensive lesson.
Is the New York Mortgage Trust Inc Dividend Safe?
To see whether NYMT’s dividend is safe, let’s first take a look at the company’s business.
Headquartered in New York City, NY, NYMT is an internally managed real estate investment trust (REIT). As the name suggests, the company focuses primarily on investing in mortgage-related assets.
In its own words, New York Mortgage Trust’s objective “is to manage a portfolio of investments that will deliver stable distributions to our stockholders over diverse economic conditions.”
The company plans to achieve this objective through the net interest margin and net realized capital gains earned from its investment portfolio. (Source: “About Us,” New York Mortgage Trust Inc, last accessed October 4, 2019.)
In each earnings release, New York Mortgage Trust reports something called comprehensive earnings per share. For the company’s dividend to be considered safe in a given reporting period, it should generate comprehensive income that is in excess of its dividend payout.
Last year, New York Mortgage Trust Inc earned a comprehensive income of $0.40 per share. Its declared dividends, on the other hand, totaled $0.80 per share for the year. Therefore, the company did not generate enough money to cover its payout in 2018. (Source: “New York Mortgage Trust Reports Fourth Quarter 2018 Results,” New York Mortgage Trust Inc, February 21, 2019.)
Usually, such insufficient dividend coverage means income investors should just walk away from a stock. But due to what the company has been doing this year, NYMT stock may deserve a second look.
You see, in the first six months of 2019, New York Mortgage Trust’s comprehensive income totaled $0.47 per share. During this period, the company declared two quarterly dividends totaling $0.40 per share.
In other words, NYMT’s profit exceeded its common stock dividends by 17.7% in the first half of this year. (Source: “New York Mortgage Trust Reports Second Quarter 2019 Results,” New York Mortgage Trust Inc, August 5, 2019.)
That was a solid achievement.
Still, like a lot of the double-digit yielders, NYMT is not perfect. In particular, while the company offers a generous yield and has improved its dividend coverage substantially this year, it is actually paying less per share than what it did before.
For instance, in 2016, New York Mortgage Trust had a quarterly dividend rate of $0.24 per share. And, in 2014, it was paying quarterly dividends of $0.27 per share. (Source: “Dividend History,” New York Mortgage Trust Inc, last accessed October 4, 2019.)
In other words, the company has cut its dividends before.
So, where does that leave us?
Well, given that no one likes dividend cuts, I certainly wouldn’t call NYMT stock a slam dunk. But if the company can keep covering its dividends with a sizable margin of safety, its massive payout could be worth a look for yield-seeking investors.