Looking for Yield? Check Out This Little-Known Stock
Most people have never heard of Ready Capital Corp (NYSE:RC), but if you’re looking for yield, this company could be one of biggest opportunities on the market.
Headquartered in New York City, Ready Capital is a real estate finance company that originates, acquires, finances, and services small- to medium-balance commercial loans. Structured as a mortgage real estate investment trust (mREIT), Ready Capital Corp has provided more than $3.0 billion in capital since its founding in 2011.
We’ve covered quite a few mREITs here at Income Investors because they tend to be on the higher end of the yield spectrum. RC stock is no exception. Better yet, the company is raising its payout to shareholders.
On December 14, Ready Capital’s board of directors declared a quarterly cash dividend of $0.35 per share, representing a 16.7% increase from the company’s previous quarterly dividend of $0.30 per share. The new dividend will be paid on January 29, 2021 to shareholders of record as of December 31, 2020. (Source: “Ready Capital Corporation Declares Fourth Quarter 2020 Dividend,” Ready Capital Corp, December 14, 2020.)
With Ready Capital stock trading at $12.29 per share, the increased dividend rate gives the company an annual dividend yield of 11.4%.
When most companies don’t even pay investors five percent in today’s market, the double-digit yield from RC stock certainly stands out.
However, like most ultra-high-yielding stocks, Ready Capital is not perfect. In particular, the company reduced its quarterly payout earlier this year from $0.40 to $0.25 per share. While it wasn’t an unusual thing to do at the time—the economy was deep in the doldrums due to the COVID-19 pandemic and the ensuing lockdowns—it certainly wasn’t good news to income investors.
But here’s the neat part: after cutting the quarterly dividend to $0.25 per share (that decision was announced in June), the company quickly started bringing its payout back up. In September, management announced a 20% increase in its quarterly dividend rate to $0.30 per share. So with its latest announcement, Ready Capital has delivered two consecutive quarterly payout increases, and its quarterly dividend rate is just $0.05 below its pre-pandemic level. (Source: “RC Dividend History,” Nasdaq, last accessed December 18, 2020.)
The company was also able to afford the rising dividend. According to its latest earnings report, Ready Capital generated net income of $0.63 per share and core earnings of $0.57 per share in the third quarter of 2020. Whichever metric you use, the amount was in excess of the $0.30-per-share cash dividend the company paid for the quarter. (Source: “Ready Capital Corporation Announces Third Quarter 2020 Results,” Ready Capital Corp, November 4, 2020.)
Investors considering this high-yield stock should take into account the upcoming merger transaction with Anworth Mortgage Asset Corp (NYSE:ANH). Under the agreement, each share of Anworth common stock will be converted into 0.1688 shares of Ready Capital common stock and $0.61 of cash consideration. The merger is expected to close by the end of the first quarter of 2021, at which point Ready Capital stockholders will own about 76% of the combined company. (Source: “Ready Capital and Anworth Mortgage Asset Corporation Announce Merger Transaction,” Ready Capital Corp, December 7, 2020.)
Bottom Line on Ready Capital Corp
Note that Ready Capital’s latest dividend hike was declared after the merger announcement, so management is likely very optimistic about the effect of the transaction.
In fact, due to the potential benefits of the merger—such as greater portfolio diversification, reduced operating expenses, and improved access to financing—we could be looking at the beginning of a new era for this high-yield stock.