NexPoint Real Estate Finance Inc: Lock in a 9.8% Yield by September 13?
NREF Stock Is a High-Yield Stock to Think About
Most people have never heard of NexPoint Real Estate Finance Inc (NYSE:NREF), but for those who want to earn oversized dividends in today’s low-yield environment, this company deserves a serious look.
Investors may want to act quickly, as NexPoint’s management will be mailing out another round of dividend checks soon. To be eligible for this payout, investors need to take action by September 13.
Allow me to explain.
Structured as a real estate investment trust (REIT), NexPoint Real Estate Finance Inc invests in first-lien mortgage loans, mezzanine loans, preferred equity, preferred stocks, common stocks, and alternative structured financing in commercial real estate properties, as well as multifamily commercial mortgage-backed securities.
In other words, this is a mortgage REIT (mREIT).
One of the reasons NREF stock doesn’t sound familiar to most people is that it’s a relatively new ticker. The company completed its initial public offering (IPO) in February 2020.
In hindsight, that wasn’t the luckiest time to go public, as the COVID-19 pandemic soon started sending shock waves across the economy and stock market. In the case of NexPoint Real Estate Finance Inc, the company priced its IPO at $19.00 per share. NREF stock then plunged during the market crash, tumbling to about $8.00 in early April 2020 before making its way back up.
As of this writing, NREF stock trades at $19.40 per share, which is just above its IPO price.
But investors who bought NexPoint stock when it went public and held it until today have done more than just break even. You see, REITs are known as income investments, and NexPoint Real Estate Finance Inc has been dishing out generous dividends.
After going public, NREF stock paid its first dividend—a prorated quarterly payment of $0.2198 per share—in March 2020.
Then the company proceeded to pay full quarterly dividends of $0.40 per share in June, September, and December 2020.
In February 2021, the mREIT’s board of directors announced a 19% increase in the company’s quarterly dividend rate to $0.475 per share, starting with the March payment. NREF stock has been following this rate since then. (Source: “NexPoint Real Estate Finance, Inc. Announces 19% Increase in Quarterly Dividend,” NexPoint Real Estate Finance Inc, February 18, 2021.)
Keep in mind that commercial real estate was one of the hardest-hit sectors during the pandemic-induced lockdowns last year, and dividend cuts weren’t uncommon among mREITs. The fact that NREF stock has paid either steady or increasing dividends since its IPO makes it stand out.
At its current share price, NexPoint Real Estate Finance Inc offers investors an annual dividend yield of 9.8%.
The company recently reported earnings. The report showed that, in the second quarter of 2021, the mREIT generated core earnings of $0.59 per share and cash available for distribution (CAD) of $0.59 per share. Both metrics were above its quarterly dividend payment of $0.475 per share. (Source: “NREF Announces Second Quarter 2021 Results, Deploys $164.8M Across 7 New Investments,” NexPoint Real Estate Finance Inc, July 29, 2021.)
For those wondering whether the company can afford this level of dividends, here’s a table showing NexPoint’s dividend coverage ratio since its IPO, using both core earnings and CAD per share.
|Quarter||Dividend Per Share||Core Earnings Coverage||CAD Coverage|
(Source: “2Q 2021 Financial Supplement,” NexPoint Real Estate Finance Inc, last accessed August 5, 2021.)
What the above table shows is that, except for the second quarter of 2020, this mREIT has always outearned its dividend. Even in the second quarter of 2020, when the company’s core earnings per share fell below its dividend per share, its CAD per share was still above its payout.
How to Earn a 9.8% Yield From NexPoint Stock
On the same day that NexPoint Real Estate Finance Inc reported its latest earnings, its board of directors declared another quarterly dividend of $0.475 per share, which is in line with NREF stock’s previous payout. The dividend will be paid on September 30 to shareholders of record as of September 15. (Source: “NexPoint Real Estate Finance, Inc. Announces Quarterly Dividend,” NexPoint Real Estate Finance Inc, July 29, 2021.)
While the record date is September 15, the ex-dividend date for the upcoming payment is September 14. Investors who buy the stock on or after the ex-dividend date will not be eligible for the dividend. Instead, it will be paid to the seller.
In other words, investors who want to be on the distribution list for the September 30 payment will need to own NREF stock before the ex-dividend date. That is, the last day to take action is September 13.