Sachem Capital Corp: Penny Stock Paying a 10.55% Dividend Yield?
Should Income Investors Consider This High Yield Stock?
For the most part, penny stocks haven’t been a staple for income investors. With shares trading at below five bucks apiece and small market capitalizations, the majority of companies behind penny stocks don’t have a business that’s established enough to support regular dividend payments.
There are, however, exceptions. Sachem Capital Corp (NYSEMKT:SACH), for instance, trades at penny stock levels, and yet it offers jaw-dropping yield of 10.55%.
Is it worth considering for income investors? Let’s take a look.
For stock market investors, Sachem Capital Corp is a relatively new name. The company completed its initial public offering (IPO) earlier this year, so it’s yet to establish a track record.
Sachem Capital is a real estate finance company headquartered in Branford, Connecticut. It specializes in originating, servicing, and managing a portfolio of first mortgage loans. The company provides short-term, secured, non-banking loans to real estate investors to fund their acquisition, development, and renovation of commercial and residential properties located in New York, Connecticut, Rhode Island, and Massachusetts. (Source: “Investor Presentation,” Sachem Capital Corp, last accessed November 29, 2017.)
In other words, Sachem Capital’s business looks very much like that of a mortgage real estate investment trust (REIT). Indeed, the company has plans to qualify as a REIT, as it intends to distribute at least 90% of its profits every year to shareholders in the form of dividends.
Sachem Capital will elect to be taxed as a REIT when it files its 2017 federal income tax return. If its REIT status gets approved, the company will no longer have to pay tax at the corporate level, making it a tax pass-through.
As a matter of fact, Sachem Capital has already returned a significant amount of cash to investors since its IPO. Its first quarterly dividend was $0.05 per share, paid in April 2017. Today, the amount has grown to $0.105 per share, representing an increase of 110%. (Source: “Sachem Capital Corp. Dividend Date & History,” Sachem Capital Corp, last accessed November 29, 2017.)
Moreover, despite its penny stock status, Sachem Capital has more than enough resources to cover its generous payout. In the third quarter of 2017, the company generated net income of $1.3 million, or $0.12 per diluted share. This provided a 1.14-times coverage of the $0.105 of dividends per share it declared and paid during this period. (Source: “Sachem Capital Reports Third Quarter Results; Announces Third Quarter Dividend,” Sachem Capital Corp, October 19, 2017.)
The portfolio has been growing, too. At the end of 2016, Sachem Capital’s loan portfolio totaled $33.75 million. By the end of the third quarter of 2017, the company’s loan portfolio had grown to $52.7 million.
With a growing loan portfolio, Sachem Capital is able to generate an increasing stream of revenues and profits. In the first nine months of 2017, the company’s revenue increased 58.7% year-over-year, while net income improved by 42.4%. If the company can keep growing its top and bottom lines, it will likely dish out even bigger dividends down the road.
So there you have it. Sachem Capital is a relatively small player in the real estate industry. But with a solid business and rising payouts, it’s a rare penny stock that deserves income investors’ attention.
Dear Reader: There is no magic formula to getting rich. Success in investment vehicles with the best prospects for price appreciation can only be achieved through proper and rigorous research and analysis. We are 100% independent in that we are not affiliated with any bank or brokerage house. Information contained herein, while believed to be correct, is not guaranteed as accurate. Warning: Investing often involves high risks and you can lose a lot of money. Please do not invest with money you cannot afford to lose. The opinions in this content are just that, opinions of the authors. We are a publishing company and the opinions, comments, stories, reports, advertisements and articles we publish are for informational and educational purposes only; nothing herein should be considered personalized investment advice. Before you make any investment, check with your investment professional (advisor). We urge our readers to review the financial statements and prospectus of any company they are interested in. We are not responsible for any damages or losses arising from the use of any information herein. Past performance is not a guarantee of future results. All registered trademarks are the property of their respective owners
Sign up to receive our FREE Income Investors newsletter along with our special offers and get our FREE report:
5 Dividend Stocks to Own Forever
This is an entirely free service. No credit card required. You can opt-out at anytime.
We hate spam as much as you do.