Last week, I covered MFA Financial (NYSE: MFA), a mortgage real estate investment trust (REIT) with a double-digit yield that I determined was unsafe.
Today, I’m looking at another mortgage REIT that, while its yield is lower, is considerably safer.
Last time I examined Ladder Capital, its stock received a “B” rating for dividend safety.
I pointed out that its $117.5 million in net interest income (NII) allowed it to easily pay $100 million in dividends in 2017.
While there were no NII estimates going forward, revenue and profits were expected to increase, which gave me confidence that NII was likely going to as well.
NII is a measure of cash flow used by mortgage REITs. It is the difference between how much the companies pay in interest to borrow money and how much interest they earn lending the funds to mortgage holders.
My confidence was well-placed. Ladder Capital’s NII for 2018 came in at $150.5 million, while it paid out $122.8 million in dividends.
That allowed the company to pay a special dividend of $0.23 in November of last year to go along with the $0.34 per share regular dividend.
That $0.34 per share regular dividend was an increase from $0.325 the previous quarter, and it marked the fifth time in five years Ladder Capital had raised its dividend.
Ladder Capital has paid special dividends three times since it began paying regular dividends in 2015.
There are no estimates for NII in 2019, but unlike last year, this year, revenue and profits are expected to decline. That suggests NII may follow as well.
In the first quarter, the spread between the rates that Ladder borrows and lends shrunk. If the results are lower in 2019, that is likely the culprit.
I expect NII to decline this year, which concerns me a little. But considering the company has a short but solid track record of annual dividend increases and has comfortably covered the dividend in the past, I’m willing to give it the benefit of the doubt.
When Ladder Capital reported earnings on July 31, management was confident on the affordability of its dividend—barring any surprises, the dividend is fairly safe in the near future.
Dividend Safety Rating: B
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