Undervalued ARMOUR Residential REIT Stock Pays 22.9% Yield
November 8, 2022
ARR Stock Pays Monthly Dividends
If you’re looking for safe, ultra-high-yield monthly dividends from a stock that’s trading at a discount, you should put ARMOUR Residential REIT, Inc. (NYSE:ARR) on your radar.
ARMOUR Residential is a real estate investment trust (REIT) that primarily invests in residential mortgage-backed securities that are issued or guaranteed by U.S. Government-sponsored enterprises. The REIT also invests in interest-only securities, U.S. Treasury securities, and money market instruments. (Source: “ARMOUR Residential REIT, Inc. Company Update,” ARMOUR Residential REIT, Inc., October 26, 2022.)
ARMOUR Residential REIT, Inc.’s investments are primarily fixed-rate loans. The company essentially raises capital through the issuing of debt and then reinvests its capital in higher-yielding debt instruments. It returns the vast majority of that money to investors in the form of share buybacks and stable, ultra-high-yield monthly dividends.
Since its inception in November 2009, ARMOUR Residential REIT stock has paid out $1.9 billion in dividends. ARMOUR Residential REIT, Inc. previously announced its November common stock dividend of $0.10 per share, for a yield of 22.9%. The monthly dividend is payable on November 28 to ARR stockholders of record as of November 15.
Since 2013, ARMOUR Residential REIT, Inc. has returned $273.0 million to common shareholders through share repurchases. In the third quarter, the company repurchased 780,000 shares at an average price of $4.96 per share, for an aggregate cost of $3.9 million. Chances are good that the company will buy back additional shares in the fourth quarter.
ARMOUR Residential REIT Stock Trading Well Below Book Value
Along with other REIT stocks, ARR stock has taken a hit because of fears of rising interest rates. As of this writing, ARMOUR Residential REIT stock is down by 37% year-to-date and 40% year-over-year.
On the plus side, ARR stock started rising again at the end of October after the company reported third-quarter results that included solid distributable earnings. For the third quarter, the REIT reported a comprehensive loss of $155.7 million, or $1.26 per share. (Source: “ARMOUR Residential REIT, Inc. Announces Q3 Results and September 30, 2022 Financial Position,” ARMOUR Residential REIT, Inc., October 26, 2022.)
That might sound bad, but for dividend hogs, it’s the company’s distributable earnings that really matter. To that end, ARMOUR Residential reported third-quarter distributable earnings of $38.8 million, or $0.32 per share. That’s more than enough to cover the company’s monthly dividend. Moreover, at the end of September, ARMOUR Residential REIT, Inc.’s liquidity was $469.0 million, made up of $291.0 million in cash and $179.0 million in unlevered agency and U.S. Treasury securities.
Despite ARMOUR Residential REIT stock’s recent gains, it’s still trading at a discount: $5.39 per share. Its book value per common share is $7.12.
Chart courtesy of StockCharts.com
The tough U.S. housing market and rising interest rates probably mean ARR stock isn’t going to skyrocket any time soon. But it should rebound once inflation is under control, interest rates start to come back down, and housing becomes more affordable. Until then, ARMOUR Residential REIT stockholders can take solace in knowing they’re holding a solid stock with high long-term growth potential and an inflation-crushing 22.9% dividend yield.
That doesn’t mean ARR stock doesn’t have near-term growth potential. ARMOUR Residential REIT stock has found support at $4.69 and resistance at $10.73. It needs to almost triple to get to its pre-pandemic levels.
The Lowdown on ARMOUR Residential REIT, Inc.
ARMOUR Residential REIT, Inc. is a great mortgage REIT that has seen its share price take a hit on rising interest rates.
That said, the company was able to report a third-quarter adjusted earnings beat of $0.32 per share. Again, that was more than enough to cover ARR stock’s monthly dividend. For buy-and-hold investors, the current macroeconomic environment will eventually pivot, which bodes well for ARMOUR Residential stock’s price and dividend over the long run.
