REIT Down the Street. 10% They Pay. MFA.

MFA REIT down the streetGraphic, STOCKjAW banne, Quality View

JANUARY 28, 2020

Update, T

We’re

inhabiting what’s known as an “expensive market.”  The flight to safety, and quality, has seemingly left little to choose from if you like income. Well, perhaps not.


AT&T has for years been viewed as income and even safety. But that was before shares ran from the low $30s to $39. The dividend’s nice, but let’s face it.  The company’s a barely manageable mess.

 

We admit it.  We used it for the dividend, until we found something we like better.  Are there alternatives to the AT&T show? We take readers on a zip tour of the “REIT Down the Street. 10% They Pay. MFA.”

 

 

condominium-690086_1920
MFA is a real estate finance business that focuses on residential. MFA holds a mix of assets in it’s portfolio.

Dividends

are great for growth or income.  Many like us reinvest, but many also use the income.   Either way dividends work in any market, including this one.  T reports on Wednesday.  In our opinion T’s close to fairly valued now at $38.25.  Morningstar Fair Value Estimate $37.  Yet Ned Davis likes the valuation here, and they think everything’s expensive.  Where is it likely to go?  No where or down.  We stayed through the ex-date and then sold our position on Monday.        

Consensus estimate for Q4 is $0.87.  A year ago T came in with $086 a share.  If T meets the consensus this time around it will achieve a 1.05% y/y EPS growth rate.  Sound good to you, even with that 5.4% dividend yield?  Clarity helps.  Investors own AT&T for that dividend.  No one owns T because it displays outstanding management, or because its’ businesses are booming, or because it’s built on a new and blindingly ingenious business model or technology.

 

 

AT&T is owned for the dividend.  Good, because CFRA estimates T’s FY 2019 EPS at $3.57, and ’20’s at $3.59.  That equals a growth rate of 0.56%.  T’s EV(enterprise value) is between $449b.-$451b., depending on who you ask.  Its’ long-term debt is $153.5b., or 33.9% of total EV.

 

Again, T’s Enterprise value lies between $449b. and $451b.  MFA Financial’s is $12.9b.  T’s long-term debt is $153.5b, or 33.9%–one third of its’ EV.  MFA’s long-term debt is $926m., or 7.2%.  T cash flows  $6.24 a share, while MFA $0.70.  That means a company with an EV 35x larger only cash flows 8.9x more per share.

 

 

residential, street, house
Residential REITS took a serious beating during the subprime crisis. We’re not in a housing crisis, now, unless you consider the savage shortage of starter homes and rentals.  MFA owns some of those too. What do you think their TAM(total addressable market) is? Fa King limitless. It’s a banquet.

Over

the past year T’s EPS growth is 6.3%, while MFA’s gone backward -11.3%.  Yet we don’t drive through the rear windshield.    The forward looks predicts EPS growth of 0.48-0.56% for T.  MFA’s set for EPS growth of 15.72%.  The treailing twelve month(TTM) sales growth for T was 10.9%, and MFA 20.5%.   The five year dividend yield average for T is 5.5%, and for MFA 10.9%.  The five year dividend growth rate average; T 2.1%, MFA 12.7%.  Everyday is the playoffs for investors.  MFA moves on.  T watches from the couch.

 

 

 

Chiefs
Good luck to both sides. SF and KC both deserve it.

 

 

MFA financial strength
We all know it. Investors keep AT&T afloat for the income. T’s recent run from $34-$39 is gravy, and nothing any investor holds her breath waiting on. Yes, we all also know T swims in debt, and assures everyone who’s not jobbing away that “WE CAN PAY.” Fine. What’s T’s current payout ratio? 95.6%. That’s not exactly comffy. And MFA’s? 98.8%–same same. But MFA pays you 10.15%. And it’s not like staying with T offers your the stability of a fine large cap balance sheet.

 

MFA Financial Inc. Included in 2020 Bloomberg Gender Equality Index.

“NEW YORK, Jan. 22, 2020/ PRNewswire/– MFA Financial, Inc. announced today that it is one of 325 companies across 50 industries included in the 2020 Bloomberg Gender-Equality Index, which recognizes companies committed to transparency in gender reporting and advancing gender equality. “We are proud that MFA’s commitment to equality and advancing women in the workplace has been recognized by the Bloomberg Gender-Equality Index,” stated Craig L. Knutson, Chief Executive Officer.”–PRNewswire, 1-22-20

 

 

MFA Financial Inc. MFA: NYSE

MFA, 1y
MFA’s past year is an ongoing uptrend with a WTF thrown in. Sj’s investigation goes on, yet we wanted to get this out, prior to T’s earnings release tomorrow. Why? Because every percent counts. T will be fine, yet again, in our opinion they have limited EPS firepower to justify the current valuation, This being said, it may prove that the viral threat could push investors even more into snug dividend plays they know.

Every

step in our investigation of MFA has only continued to confirm the company’s performance and viability.  Any 10% dividend yield should raise red angry flags, as this one did.  However, contempt prior to investigation only insures ignorance.  Is there a REIT worth buying?  We looked.  We like.  We now own.  A follow-up is in the works.  As usual, good investing and good luck.

 

 

That Investing Journey

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Additional resources:

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https://www.schwab.com/public/schwab/client_home
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