Updated February 24, 2023 Samuel Smith
Investors are often attracted to stocks that pay dividends because they generate profits. Stocks that pay dividends provide income even when the price of the stock can fluctuate.
Some companies pay dividends every month, which gives investors a steady cash flow. However, there are 50 stocks that pay dividends every month.
You can download a complete list of stocks that pay monthly dividends (along with price/earnings ratios, dividend yields and payout ratios) by clicking the link below.
Ellington Financial Inc (EFC) is a real estate investment trust (REIT) that pays monthly dividends. Even better, this stock has a very high dividend yield of 13.5%.
Of course, high-yield stocks are often a warning sign that there are serious challenges in the underlying business. Stocks with very high yields above his 10% could force investors to cut dividends later. You should avoid these “yield trap” stocks.
This article examines Ellington Financial’s business model, growth prospects, and dividend safety to determine whether investors should consider buying shares.
Business overview
Ellington Financial transitioned to a REIT only in early 2019. Prior to that, trusts were taxed as partnerships. It is now classified as a mortgage REIT.
Ellington Financial is a hybrid REIT. In other words, a trust is a combination of an equity REIT that owns real estate and a mortgage REIT that invests in mortgage loans and mortgage-backed securities. The mortgage-backed securities it manages are backed by prime jumbo loans, Alt-A loans, manufactured home loans and subprime residential mortgage loans.
Ellington Financial has a market capitalization of approximately $900 million. You can see a snapshot of Ellington’s investment portfolio in the image below.
Source: Presentation for investors
Ellington Financial reported fourth quarter results on February 23, 2023. Net income attributable to common stockholders was $22.7 million, equal to $0.37 per common share. The investment portfolio contributed $19 million ($0.31 per common share), the credit strategy contributed $7.2 million ($0.12 per common share), and the agency strategy contributed $11.8 million ($0.19 per common share). , Longbridge contributed $14.5 million, or $0.24 per common share. share. Adjusted distributable earnings totaled $26 million, or $0.42 per common share.
Book value per share of common stock as of December 31, 2022 was $15.05, including a quarterly dividend of $0.45 per common share. Based on a February 22, 2023 closing price of $13.40 per share and a monthly dividend of $0.15 per common share announced on February 7, 2023, the dividend yield was 13.4%.
As of December 31, 2022, the recourse debt-to-equity ratio was 2.5:1 and the debt-to-equity ratio was 10.2:1 including all non-recourse borrowings consisting primarily of securitization-related debt was. As of that date, the company had cash and cash equivalents of $217.1 million and other unsecured assets of $277.9 million.
growth outlook
Ellington’s EPS generation has been fairly inconsistent over the past decade, with rates mostly falling. As a result, his dividend per share has also declined almost since 2015.
However, the company does its best to diversify its portfolio and reduce performance variance.
Additionally, mortgage investments are spread across different types of securities (non-QM, reverse mortgages, REOs, etc.). Ellington has been very careful lately not to concentrate risk on too few areas, which has increased the volatility of economic returns.
Source: Presentation for investors
Ellington designs the portfolio so that changes in interest rates over time do not have a significant impact on the overall portfolio.
However, high dividends and high funding costs for equities should continue to weigh on EPS generation.
Competitive Advantage and Recession Performance
Ellington does not have a significant competitive advantage, but the quality of its balance sheet remains strong, Ellington’s relatively low debt-to-equity ratio for a mortgage REIT, enhanced security, and volatility in good times and bad. One positive is that it will go down. times.
Ellington Financial wasn’t a publicly traded company during the Great Recession, but its stock price fell sharply at the start of the COVID-19 pandemic. The company cut its dividend further during this time, but has since increased it. Earnings have also recovered, but are still below the levels of 2012, 2013 and 2014.
Dividend analysis
Ellington Financial’s dividend history has been volatile, with multiple dividend cuts and dividend increases. The company cut its monthly dividend from $0.15 to $0.08 in the first quarter of 2020 because of the pandemic, but management has increased it several times since.
In the first quarter of 2021, the company announced an increase to $0.15 per month. This is now on par with pre-pandemic dividend levels. At the level of $0.15 per share each month, Ellington Financial’s annual dividend is $1.80 per share for him. As such, it is still lower than the dividends paid out before 2016. His EPS for 2023 he projects is $1.68, which isn’t enough to cover the current payout ratio.
This is a troubling sign for dividend safety, and therefore the company’s DPS should not be considered safe for the foreseeable future. Moreover, based on the historical downward trajectory of the DPS, there is potential for a slight decline going forward due to the risk of mortgage defaults amid the ongoing pandemic and upcoming rate hikes.
High levels of volatility are expected, but stocks with yields above 10% are certainly attractive to income investors. Since its IPO, the company has paid a cumulative dividend of over $29 per share, which is more than double its current stock price. Therefore, it has provided a solid stream of income to its shareholders over the years.
final thoughts
Rising yields are often a warning sign of deteriorating fundamentals, so high-yielding dividend stocks should always be viewed with caution. In the case of Ellington Financial, this seems to be the case, as the company has shown significant volatility in its dividend payouts.
The trust has a diversified loan portfolio and has proven successful in improving profitability over time. Ellington Financial’s dividend yield also looks safe for now, though another cut could be offered if the trust confirms a slowdown in business.
Investors not willing to take high risks should probably avoid Ellington Financial stock. That said, Ellington Financial stock pays dividends every month and has a high yield, assuming the dividend is intact. Investors with a high tolerance for risk may find Ellington Financial to be an attractive investment option.
If you’re looking to find more quality dividend growth stocks for your long-term investment, the Sure Dividend database is here to help.
Major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles and updates the following stock market databases monthly.
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