Editorial StaffEvery investor wants to see his stocks pay off – or he wouldn’t be in the markets. But finding the right investment, the ‘one’ that will bring profits, no matter what direction the overall markets take, can sometimes be challenging.
The two simplest courses of action an investor can take to ensure solid returns are based on common sense. The first is, to buy low and sell high. That is, find a cheap stock with sound fundamentals and good prospects for growth – and buy in to take advantage of the growth potential. The second common sense move is to buy stocks that will pay you back. That is, buy into dividend stocks.
So, let’s try looking at both strategies. We’ve used the TipRanks database to dig up the details on several stocks that are priced below $10 per share – and that offer high-yield dividends over 8%. These aren’t big names that dominate the stock market, but nevertheless, they are companies that deserve a second look.
Sachem Capital (SACH)
We’ll start with Sachem Capital, a real estate investment trust (REIT). These companies are well-known as dividend champions, due to a facet of tax regulations that requires them to return a certain percentage of earnings and profits directly to shareholders. Dividends are a convenient method for such returns – and dividend investors can reap rewards from REITs.
Connecticut-based Sachem specializes in first mortgage loans. The company’s portfolio is based on short-term, secured, non-banking loans made to real estate investors, for the purpose of funding acquisitions, renovations, building rehabs, and development in both residential and commercial areas. The company’s activities are focused mainly in Connecticut, Massachusetts, and New York, as well as Florida.
Sachem will be releasing its 3Q21 numbers on November 17, but we can get an idea of the company’s position by looking at the Q2 and 1H results previously released. The company reported record quarterly revenue in Q2, of $6.46 million, up some 56% from 2Q20. Earnings came in at 10 cents per share, the fifth consecutive quarter of 10-cent EPS. Sachem had $106.7 million in liquid assets as of June 30 this year, which was up 88% from Dec 31, 2021.
Ahead of the Q3 report, the company has declared a current dividend of 12 cents per share. This marks the tenth consecutive quarter with the dividend payment at this level – and it marks more than three years of reliable dividend payments. At the current payment, the dividend annualizes to 48 cents per common share, and gives a yield of 8.3%.
Aegis analyst Brian Hollenden covers this stock, and is upbeat about its potential. He writes, “SACH’s ability to underwrite an investment opportunity and fund a loan within a few days really provides the company with a significant competitive advantage. In addition, being a public company and having access to lower cost of capital also sets it apart from many of its competitors. Also, management has worked in numerous credit cycles and is relatively conservative, in our view. With an ability to lend at over 12% and access to debt and equity capital that continues to decline in cost, we see SACH generating significant shareholder value in the long run.”
To this end, Hollenden rates SACH a Buy along with an $8 price target. This figure suggests room for ~38% gain in the coming year.
Sachem has not attracted a lot of analyst attention, but those who have reviewed the stock agree with Hollenden’s assessment. Sachem has a unanimous Strong Buy analyst consensus rating, based on 3 recent reviews. The stock’s $6.50 average price target suggests room for 12% upside in the coming year.
Manhattan Bridge Capital (LOAN)
Next up is Manhattan Bridge Capital, a micro-cap lending firm based in New York City. The company focuses on short-term, secured, hard-money loans, and like Sachem above, Manhattan Bridge’s loans are used for first mortgages, usually by real estate developers. The typical collateral offered on the loans is tradable stock or real estate.
The company’s recent Q3 results showed $1.63 million at the top line, with EPS of 10 cents. On both metrics, the trend in recent quarters has been downward. However, despite the slow fall-off in revenues and earnings, Manhattan Bridge has kept up its dividend payments – and even boosted them in recent quarters. The current payment is 12.5 cents per common share, higher than it was pre-COVID. At the current rate, the dividend annualizes to 50 cents per common share, and gives a yield of 8.1%.
Maxim analyst Michael Diana covers this stock, and is impressed by the company’s quality. In one example of this, he writes, “Even when demand was slack, management remained disciplined in its credit standards. LOAN has never had to foreclose on a property and has never experienced a loan default (though it has had loan renewals and extensions). This pristine credit-quality record was preserved in 3Q21.”
In light of these comments, Diana puts a Buy rating on LOAN, along with a $7 price target that indicates a potential 14% upside in the year ahead.
Diana summed up, “Our Buy rating reflects our confidence in LOAN’s long-term ability to combine solid loan originations with pristine credit quality…”
Some stocks fly under the radar, and LOAN is one of those. Diana’s is the only analyst review of this company, and it is decidedly positive.
New York Mortgage Trust (NYMT)
The last dividend stock we’re looking at is another REIT. New York Mortgage Trust maintains a portfolio valued at $3.2 billion, which leans heavily – some 49% – toward residential mortgage loans. Another 15% is made up of structured multifamily investments – that is, loans to developers to build apartment complexes, and 22% of the total is residential mortgage-backed securities.
New York Mortgage Trust has seen its revenues and earnings languishing at low levels since COVID pandemic slammed the business last year. While both measures have returned to positive reads, neither has fully recovered. In 2Q21, the company reported $59.5 million at the top line, and EPS of 11 cents. At the height of the pandemic, the company slashed back its dividend payment, from 20 cents per common share down to 5 cents. Despite these low metrics, the company had a solid balance sheet, with over $397 million in cash and liquid assets on hand as of the end of Q2. The stock has performed well, rounding strongly from low levels seen last year and appreciating a robust 80% in the past 12 months.
In a move of interest to investors, New York Mortgage Trust in Q4 of last year increased its dividend payment to 10 cents per common share, double its floor during the COVID crisis, and has since held it at that level. The current dividend declaration makes 4 quarters in a row with a 10 cent payment for common stockholders. At the annualized rate of 40 cents, this yields a solid 9%.
Once again, we’ll check in with Maxim’s 5-star analyst Michael Diana, who says of this company: “NYMT’s strong balance sheet, low leverage and expanded pipeline of investment opportunities should enable it to deploy its ample liquidity into mortgage credit assets (predominantly loans). This should increase earnings, including recurring net interest income, and possibly position the company for a dividend increase in 2022.”
The analyst added, “NYMT shares currently trade at 0.92x book value. In our view, a mortgage REIT such as NYMT, with a good historical record of preserving book value, should trade at least in line with high-quality peers.
In line with his optimistic approach, Diana gives NYMT stock a Buy rating, and his $5 price target suggests a 12% upside for the year ahead. Based on the current dividend yield and the expected price appreciation, the stock has ~21% potential total return profile.
Overall, this stock gets a Moderate Buy consensus rating, based on 2 Buys and 1 Hold. The shares are priced at $4.43 and their $5 average target matches Diana’s.
Source: Yahoo Finance
