In the pursuit of seeking out assets with double-digit yields in a market where interest rates are trading at low single digits, stock selection is at a major premium — and it takes a savvy management team to drive this kind of yield to richly reward income investors.
NorthStar Realty Finance (NRF) is a real estate investment trust (REIT) that I just recommended for my Cash Machine subscribers. The company recently spun off its asset-management business at the end of June and raised its dividend for the first quarter, with the post-spin-off shares currently trading around $18.80. The company intends to pay a $0.40 dividend starting with the current quarter, implying a forward yield of 8.5%.
The company is structured as a diversified REIT engaged in ownership of properties in hotels valued at $1.1 billion, manufactured housing valued at $55 million, real estate loans valued at $105 million and strategic global properties with a net asset value of $120 million that was purchased for $108 million, with an emphasis on European commercial properties situated in key metropolitan cities.
In the second quarter, cash available for distribution was $103.8 million, or $0.58 per share, more than covering the dividend. NorthStar will acquire healthcare REIT Griffin-American for $4 billion after the second quarter while committing an additional $2.8 billion of investments during the quarter.
Yesterday, analysts at FBR Capital Markets raised their price target on NRF from $20 to $21 and placed an “outperform” rating on the shares. But given the big spinoff and the ensuing stock-price adjustment, it may take time for the rest of the analyst community to warm up to the stock, which is why I believe this is a good time to hop aboard this name while investors can capture a hefty yield.
Once the company shows strong revenue and earnings trends for next quarter (estimated to rise by 56%), I agree with the FBR report — the stock will clear $20 and keep moving higher from there.
Bryan Perry is the editor of Cash Machine, a newsletter focused on high-yield income investing with the goal of maintaining a blended total yield of 10% across two portfolios. Bryan is also the editor of Extreme Income, which uses the power of historically cheap money to create a leveraged “baby hedge fund” strategy that paves the way to massive profits and up to 4x greater income.