Updated June 28, 2021 by Bob Ciura
ARMOR Residential REIT Inc. (ARR) is a mortgage real estate investment trust (mREIT) that offers an attractive dividend yield of 10.4%, making it a high dividend stock.
ARMOR Residential also pays out its dividends on a monthly basis, which is rare as the vast majority of companies that pay a dividend pay it out quarterly or semi-annually.
There are currently only 52 monthly dividend stocks in our coverage universe. You can download our full list of monthly dividend stocks (along with price-to-earnings ratios, dividend yields, and payout ratios) by clicking the link below:
ARMOR Residential’s high dividend yield and monthly dividend payments make it a fascinating stock for dividend investors, even if dividend payments have declined over the years.
As with many dividend stocks with a yield of over 10%, the sustainability of the dividend is questionable. This article analyzes ARMOR Residential’s investment outlook.
As a mREIT, ARMOR Residential invests in mortgage-backed securities that include US government funded companies (GSE) such as Fannie Mae and Freddie Mac. It also includes Ginnie Mae, the securities issued or guaranteed by the state’s National Mortgage Administration that are backed by a fixed rate, hybrid floating rate, and floating rate home loan.
It also includes unsecured notes and bonds issued by the GSE and US Treasuries, money market instruments, and securities not collateralized by the GSE or government agencies.
The mortgage REIT was founded in 2008 and is based in Vero Beach, Florida. It seeks to create value for shareholders through careful investment and risk management practices that produce long-term ongoing returns and superior risk-adjusted returns.
With a market capitalization of about $ 800 million and annual sales of about $ 150 million, it’s a major national player in residential investment.
Source: Investor Presentation
The trust makes money by raising capital through the issuance of debt, preferred and common stocks, and then reinvesting the proceeds in higher-yielding debt.
The spread (that is, the difference between the cost of capital and the return on capital) is then largely repaid through dividend payments to the common stockholders, although the trust can often withhold a small portion of the profits to reinvest in the company.
The latest results at ARMOR have been mixed. The trust was severely impacted by the COVID-19 pandemic but was able to meet all of its margin calls and continued to have access to buyback funding.
ARMOR reported the first quarter of 2021 Results on April 21st, 2021. Liquidity of the trust, including cash and unencumbered securities amounted to $687 Million at 12.40 in the Book value per common share at the end of the quarter. Core income fell from $ 0.32 per share in Q4 2020 to $ 0.23 per share in the first quarter of 2021.
ARMOR also reported fault–to–Equity ratio of 4th2–to–1 compared to 4.8–to–1 at the March 30th. The securities portfolio included $7th7th Billions from Agency MBS and includes TBA securities. Now comprehensive Income was $ 29.1 million, an annualized return of 12% based on shareholders’ equity at the beginning of the year Quarter.
Looking ahead, lower short-term interest rates could improve companies’ profit margins as they can now borrow money at cheaper rates and use the proceeds to buy back preferred and common stocks at a discount to the prices at which they were issued.
Source: Investor Presentation
Lately, a a shrinking balance sheet and falling spreads have weakened the trust’s ability to generate cash flow. That being said, the economic disrThe upswing caused by the coronavirus outbreak has disrupted the business model and is leading a sharp drop in cash flow per share,as well as a steep dividend cut.
We expect low interest rates in the future Interest rate environment and strong government incentives toThe company can resume growth, although it is likely while they can bring their book value and earning power back to previous levels.
While there have certainly been some positive developments at ARMOR, there are still some risks to be concerned about. ARMOR’s quality metrics have been volatile given the trust’s performance as prices shifted over the year Years. Gross margins have recently fallen–interest rates began to rise significantly a few years ago, although it seems most of the timeNo damage was done.
Balance lever was moveing slightly down,but it recorded another upward trend in the last quarter. We do not Prediction a significant movement in either direction of it Point. Interest coverage has decreased with increasing spreadsIt also seems to have stabilized so we’re a bit optimistic Move forward while keeping the significant potential for volatility in mind.
ARMOR has headwind from the Coronavirus outbreak and a macroeconomic downturn. As a result, a steep one Dividend cut was necessary to the Balance sheet and enable the REIT to reposition itself for survival and future growth.
At current levels, the annualized dividend payout of $ 1.20 per share will represent almost all of the company’s earnings per share (we estimate earnings per share to be $ 1.22 in 2021), resulting in a payout ratio of close to 100 % leads. This is a warning sign that if EPS declines, the dividend could be reduced even further.
For example, if the economy slips into recession, mortgage defaults could skyrocket and cause heavy losses. Given the uncertain macroeconomic outlook, this risk is relevant to investors.
ARMOR Residential’s high dividend yield and monthly dividend payments stand out among investors with high yield dividends. However, we remain cautious on the stock, especially given the multiple dividend cuts in recent years.
While the trust is currently paying its dividend, falling interest rates could push the trust further out of the risk spectrum in order to maintain its cash flows while its older mortgages disappear from the balance sheet. This harbors potentially high losses should the economy slide into recession.
Therefore, the ARMOR share carries a significantly higher risk. This makes the investment highly speculative right now, especially for risk-averse income investors like retirees. For this reason, we encourage risk averse investors to look elsewhere for sustainable and growing returns.
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