Don’t Be Intimidated by the 11% Yield on New Residential Investment Corp (NRZ) Stock

New Residential Investment Corp (NYSE: NRZ) stock has had a decent year so far, up over 9% year to date.

Don’t Be Intimidated by the 11% Yield on New Residential Investment Corp (NRZ) Stock

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But the thing about this real estate investment trust (REIT) is not its stock performance — which is nice — but its massive dividend yield, which currently sits at 11.6%.

That isn’t a typo. 11.6%.

What Makes NRZ Stock Special?

REITs operate a little differently than most typical companies. Since they are considered trusts, investors are viewed more as owners than shareholders. And REITs must pay out 90% of their taxable income in the form of dividends to its “owners.”

This is why quality REITs are very good investments for solid income when the economy is healthy.

Recently, we’ve seen some sectors of REITs get hammered. For example, REITs that were focused on shopping malls have been hammered as online shopping has taken its toll on anchor stores in big malls and smaller malls have suffered as people are no longer making the trip to the store, which hurts retailers and makes it difficult for the REITs that own their brick and mortar properties.

On the other hand, REITs that lease buildings for server farms and cloud storage are doing very well as this trend continues to expand.

The point is, you have to make sure you’re picking REITs that are in the right sectors. Not all REITs are created equally and it’s important to be very particular when you choose one.

In the case of NRZ, it specializes in mortgage servicing rights (MSR). Basically, the mortgage lender farms out the management of the mortgage to a company that collects the mortgage, escrow, etc and then collects a fee for servicing the mortgage.

The lender doesn’t have to support the mortgage collection process and NRZ doesn’t have to rely on selling mortgages. Both sides of the MSR optimize their strengths and can focus on efficiencies.

Also, by offloading the MSRs, the lender can then free up lines of credit to lend more, which is very helpful in the continued tight credit markets today.

The interesting thing about MSRs is, as the Federal Reserve starts to unwind its portfolio of mortgage-backed securities, there may be some huge opportunities for MSRs firms to get some of that action.

And even if that doesn’t create a windfall, the reality is big banks that are the key lenders in the housing market are looking to build out efficiencies wherever they can. As the housing market regains its footing, NRZ will have greater opportunities to expand its business.

Another good thing is, while commercial and residential real estate are still in the early stages of a recovery, NRZ isn’t as beholden to their fate and can benefit from early stage growth.

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

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