New York Mortgage Stock: 67% Upside Ahead for 11.9%-Yielder?
January 1, 2025
BlackRock Has 16.9% Stake in NYMT Stock
Lower interest rates will benefit financial stocks like New York Mortgage Trust Inc (NASDAQ:NYMT).
Why?
Well, as a mortgage real estate investment trust (mREIT), New York Mortgage Trust borrows a lot of money to fund its activities. Higher interest rates eat into margins and profits. Lower interest rates make borrowing cheaper and lead to more lending.
And the lower-interest-rate environment is great for New York Mortgage Trust Inc. The mREIT acquires, invests in, finances, and manages primarily mortgage-related assets and financial assets in New York City, New York, Los Angeles, California, and Charlotte, North Carolina.
The mREIT has built a portfolio of credit-sensitive assets that provide risk-adjusted returns throughout changing economic conditions. It does this by targeting mortgage-related and single-family housing-related assets with elements of credit risk and interest rate risk.
New York Mortgage Trust’s $6.9-billion portfolio is primarily made up of residential mortgage loans, including business purpose loans. It also includes structured multi-family investments, agency residential mortgage-backed securities (RMBS), non-agency RMBS, and commercial mortgage-backed securities. (Source: “Third Quarter Financial Summary,” New York Mortgage Trust Inc, last accessed December 9, 2024.)
“Sharply Higher Earnings”
Thanks to a rotation in its portfolio to acquisitions with higher recurring revenue, New York Mortgage Trust was able to report a third-quarter earnings beat and strong total adjusted net Income growth.
For the third quarter ended September 30, 2024, the mREIT reported net income of $0.36 per share, up from a third-quarter 2023 net loss of $1.04 per share. It reported adjusted net income of $32.4 million, or $0.39 per share, up from $0.12 per share in the same prior year period and a second-quarter loss of $0.29 per share. New York Mortgage Trust also beat Wall Street’s earnings consensus of $0.06 per share. (Source: “New York Mortgage Trust Reports Third Quarter 2024 Results,” New York Mortgage Trust Inc, October 30, 2024.)
The company’s Interest income rallied 66% to $108.4 million, or $1.20 per share, while net interest income advanced 20.2% to $20.2 million, or $0.22 per share. The book value per share increased 1.44% to $9.83 per share with an adjusted book value per share of $10.87.
During the quarter, New York Mortgage Trust acquired $1.0 billion in new investments, including:
- $372.0 million in agency RMBS
- $624.0 million in residential loans
Commenting on the second-quarter results, Jason Serrano, the mREIT’s CEO, said, “The Company reported sharply higher earnings per share of $0.36 in the third quarter. The improved earnings were the result of a portfolio rotation which began over a year ago. As part of the plan, we focused on acquisitions that can deliver high recurring interest income by rotating from under-performing, total return opportunities. Consequently, the Company reported Total Adjusted Net Interest Income of $29 million in the third quarter, up 39% year-over-year.”
Maintains Quarterly Dividend of $0.20/ Share
As a REIT, New York Mortgage Trust has to legally distribute at least 90% of its taxable income to shareholders. Since its June 2004 initial public offering, the company has declared a total of $1.4 billion in common stock dividends. For the sake of reference, New York Mortgage stock’s total market capitalization is $571.6 million.
In September, New York Mortgage Trust declared a third-quarter dividend of $0.20 per share, or $0.80 per share on an annual basis, for a forward dividend yield of 12.68%.
67% Upside with New York Mortgage Stock?
High-yield, rate-sensitive mREITs were some of the worst-performing REITs during 2022 and 2023. That’s when the Federal Reserve starting hiking interest rates in response to surging inflation. Higher interest rates make it more expensive to borrow, cut into profits, and reduce free cash flow.
But the Fed initial interest-rate cuts and public optimism about the economy have helped juice mREITs in general. As of this writing (December 9), New York Mortgage stock is up roughly 24% since late October, which is when the mREIT reported its third-quarter results.
That’s the good news. New York Mortgage stock is still down 16% year to date and 18% on an annual basis at $6.52 per share, well below its December 2023 52-week high of $8.61 per share.
That said, conservative Wall Street analysts expect the stock to surpass that level over the coming quarters, with an average 12-month share price target of $7.88 and high estimate of $11.00. This points to potential gains in the range of 14% to 67% with New York Mortgage stock.
Chart courtesy of StockCharts.com
The Lowdown on New York Mortgage Stock
New York Mortgage Trust Inc is a mortgage REIT with a diversified, growing portfolio of residential mortgage-backed assets. It also has a strong balance sheet and liquidity position.
The mREIT reported strong third-quarter results with sharply higher earnings of $0.36 per share and an adjusted earnings beat of $0.39 per share. Interest income and net interest income both experienced double-digit growth.
The strong earnings and adjusted earnings growth and focus on acquisitions that can deliver high recurring interest income have energized analyst guidance. And that is good news for New York Mortgage stock shareholders and the 225 institutions that hold a big 59.11% of the company’s shares.
BlackRock Inc is the largest institutional holder, with a 16.9% stake (15.32 million shares). Vanguard Group Inc is the second largest holder, with a 6.8% stake (6.16 million shares).
