Daily Archives: April 3, 2018

Dividends

Is this the Best High Yield Stock?

What is likely the best performing high-yield stock just went ex-dividend. I recommend adding to big dividend stock positions after the ex-dividend dates, to usually pick up shares at a cheaper price. While I highly encourage income-focused investors to make sure they diversify into at least 20 dividend stocks, there is one that is a must-own, 11% yielding REIT that is also growing its dividend payments.

New Residential Investment Corp. (NYSE: NRZ) is a finance REIT that invests in products that are on the financial fringe of the residential mortgage industry. The largest investment is in mortgage servicing rights –MSRs. These are the contractual fees the mortgage servicing company receives out of the interest paid on a home mortgage. MSRs are typically 25 basis points (0.25%) per year. The cost to service a mortgage is typically less than 10 bp. The rest is profit to the company that owns the MSRs. New Residential owns full or excess MSRs on over half a trillion dollars of unpaid mortgage balances. 25 basis points of that much loan balance is a lot of cash flow!

Recently NRZ has been buying up call rights on non-agency mortgage backed securities. Currently the company owns rights on $145 billion of unpaid balance MBS. This is 30% of the entire non-agency MBS market. New Residential executes what it calls “clean up” calls on the MBS, repackaging the loans into new securities. It is a profitable business.

The company owns a portfolio of opportunistic residential mortgage and consumer loan portfolios. New Residential has been very successful at finding opportunities for great returns from loan portfolios that don’t fit into the needs of traditional buyers of these products. For example, the company has earned an 89% annual internal rate of return on a portfolio of consumer loans purchased in 2013. Target returns are 15% to 20%, and the results have often exceeded the targets.

In 2017, NRZ became an approved mortgage servicing company in all 50 states. On November 29, 2017, New Residential announced definitive agreements to acquire Shellpoint, a non-bank mortgage originator and servicer. These moves allow the company to keep MSR servicing internal or contract it out, depending on what makes the most sense financially and profitably.

As an investment, NRZ has been a great dividend paying stock. Over the last three-and-a-half years, the quarterly payout has grown from $0.35 per share to the current $0.50 per share. Last year the dividend was increased twice, and the stock produced a 27% total return. For the 2017 fourth quarter, the company reported core earnings of $0.61 per share. This was the third consecutive with earnings above $0.60 and it has been three quarters since the last dividend boost. Each quarter of outstanding earnings makes the next increase more likely.

The danger for New Residential, and the likely reason why it yields over 11%, is that all the different investments in the portfolio are depleting assets. Mortgages get paid down or off. Clean up call transactions are one-time events. This means that the management and investment team must find a continuous stream of investment opportunities that will generate the company’s target 15% to 18% returns on equity. This requires a high level of expertise. So far in its five years as a public company, NRZ has surpassed all expectations and continues to do so. Investors do need to be aware that the company needs to be monitored to make sure it keeps the pipeline of investments full.

Get up to 14 dividend paychecks per month from safe, reliable stocks with The Monthly Dividend Paycheck Calendar, an easy-to-use system that shows you which dividend stocks to pick, when to buy them, when you get paid your dividends, and how much.  All you have to do is buy the stocks you like and tell them where to send your dividend payments. For more information Click Here.


Source: Investors Alley 

Options

How To Generate Income On Tesla’s (TSLA) Plunge

Of all the selling going on in the stock market these days, no sector has been hit harder than tech. Although I believe the overall selling has been too harsh, the tech sector was certainly overvalued relative to other sectors.

Keep in mind, the tech sector has almost always been the biggest area of growth, so it does make sense to some extent that its companies would have the highest valuations. However, there were certainly some companies whose valuations were very difficult to justify.

Of all the ultra-pricey stocks out there, probably none was frothier than Tesla (NASDAQ: TSLA). Of course, Tesla has been a cult stock for some time, and its CEO Elon Musk could basically do no wrong. By the way, some people call TSLA an automotive stock, others an energy stock, but above all else, it’s a technology company.

Take a look at the chart of TSLA over the last 3 years. You can see the huge jump last year and the big selloff over the past week.

The selloff was sparked by production concerns over the company’s Model 3 automobile. The highly sought-after $35,000 electric vehicle is not being produced as fast as expected. There is real concern that buyers will walk away as they become frustrated with the wait time. TSLA has simply not been able to keep to their ambitious production schedule.

Between the tech selloff, the sky-high valuation, and the production issues, TSLA certainly has plenty of short-term bearish catalysts. Could we see a drop all the way to $200 or below in the next six months? At least one big options trader thinks it may be possible, but also is prepared if the stock goes right back up.

This trader sold a massive September straddle in TSLA at the 265 strike. Selling a straddle is when a trader sells a call and a put at the same strike in the same expiration. It’s a strategy used when the strategist believes a stock is going to be range-bound, or settle at or near a certain price at expiration.

In this case, the trader believes TSLA won’t be too far from $265 in September (right about the current price as of this writing). How can he or she be so sure? Well, in this case, the trader has a huge range to work with because the straddle was so expensive.

Selling the straddle generated a credit of $78! That means the stock would have to close lower than $187 or higher than $343 at September expiration to lose money. That’s a gigantic range, and any price in between those strikes means the trade is profitable. At max gain of $265 at expiration, the straddle seller – who sold 800 straddles – would make over $6 million.

So is this sort of trade you and I should do? Definitely not. We don’t want that kind of risk, or more importantly, the kind of margin necessary to hold a short straddle in our portfolio. Instead, we can generate decent income by selling put spreads in TSLA.

While TSLA has its share of problems, the company’s products are also extremely popular (and typically high quality). Elon Musk has always been successful at whatever large company he’s been behind (PayPal (NASDAQ: PYPL)Space X, SolarCity). As such, I believe there’s a floor on TSLA’s stock price, at least for the next several months.

The straddle seller is protected down to $187 and until September. Let’s say we wanted to cut some time off that and look at June options. Selling the 180-190 put spread in June (selling the 190 put, buying the 180 put to cap risk) would generate about $1.00 in income.

Now, you’d risk $900 for every $100 you generate with this type of trade, so you would only do this strategy if you feel TSLA isn’t going below $200 or so. Also, if TSLA does continue to drop, you’d want to roll or close your positon pretty quickly. However, if you are believer in TSLA, this is the sort of strategy you could use every 3 months to generate additional income in your portfolio.

  [FREE REPORT] Options Income Blueprint: 3 Proven Strategies to Earn More Cash Today Discover how to grab $577 to $2,175 every 7 days even if you have a small brokerage account or little experience... And it's as simple as using these 3 proven trading strategies for earning extra cash. They’re revealed in my new ebook, Options Income Blueprint: 3 Proven Strategies to Earn Extra Cash Today. You can get it right now absolutely FREE. Click here right now for your free copy and to start pulling in up to $2,175 in extra income every week.

Source: Investors Alley