Here’s a High-Yield Stock to Think About
Time after time, you hear people complain about how the rally in the stock market has brought dividend yields down to historic lows.
And that’s true. Historically, the S&P 500 had an average dividend yield of 4.3%. Today, the yield of the benchmark index is just 1.3%. (Source: “S&P 500 Dividend Yield,” multpl.com, last accessed July 9, 2021.)
Still, that doesn’t mean every stock is stingy. If you know where to look, you can find plenty of stocks that pay multiple times more than the average S&P 500 company.
Check out Ready Capital Corp (NYSE:RC), for instance. As a non-bank real estate and small business lender, Ready Capital simply isn’t big enough to catch the attention of the mainstream financial media. And yet, it’s one of the highest yielders in the entire market.
Ready Capital’s business involves originating, acquiring, financing, and servicing small-to-medium balance commercial loans. The company, which is structured as a real estate investment trust (REIT), specializes in loans backed by commercial real estate, including agency multifamily, investor, bridge, and SBA 7(a) business loans.
Since Ready Capital’s founding in 2011, it has provided more than $3.0 billion in capital nationwide.
In June, the REIT’s board of directors declared a quarterly cash dividend of $0.42 per share. The dividend will be paid on July 30 to shareholders of record as of June 30. (Source: “Ready Capital Corporation Declares Second Quarter 2021 Dividends,” Ready Capital Corp, June 14, 2021.)
With RC stock trading at $15.90 per share, that quarterly rate translates to an annual yield of 10.6%.
Given how much other companies are paying, a double-digit annual dividend yield may seem too good to be true. And frankly, Ready Capital stock isn’t the perfect dividend stock. Early last year, the company cut its quarterly dividend from $0.40 to $0.25 per share in light of the COVID-19 pandemic.
The neat thing is, after the reduction, the payout began to rise. Ready Capital Corp declared a $0.30-per-share dividend in the third quarter of 2020, a $0.35-per-share dividend in the fourth quarter, and a $0.40-per-share dividend in the first quarter of 2021. (Source: “RC Dividend History,” Nasdaq, last accessed July 9, 2021.)
In other words, with the recently announced dividend of $0.42 per share to be paid in late July, RC stock’s current quarterly payout is actually above its pre-pandemic level.
And if you were wondering whether this ultra-high yielder can afford its dividend increases, a look at the company’s financials should be reassuring.
In 2020, Ready Capital generated distributable earnings of $1.82 per common share while declaring total dividends of $1.30 per share. So the payout was covered. (Source: “Ready Capital Corporation Announces Fourth Quarter 2020 Results,” Ready Capital Corp, March 11, 2021.)
In the first quarter of 2021, Ready Capital generated distributable earnings of $0.41 per common share. Considering that the company declared total dividends of $0.40 per share for the quarter, it managed to outearn its payout once again. (Source: “Ready Capital Corporation Announces First Quarter 2021 Results,” Ready Capital Corp, May 6, 2021.)
Bottom Line on Ready Capital Corp
At the end of the day, because Ready Capital stock’s dividend history is less than stellar, investors may have second thoughts about putting their money into this high-yield stock.
Then again, no dividend is carved in stone. And considering how well the company has covered its payout with distributable earnings over the past year or so, I’d say it’s time for income investors to add RC stock to their watch lists.