A New Way To Play Real Estate

I love dividends.  There’s nothing I like more than receiving a fat dividend payout and seeing that cold hard cash get deposited into my bank account.

The problem is, not many penny stocks pay dividends.  So when you find a true penny stock paying dividends, you want to look at it quickly.  And that’s what today’s On The Radar Report is all about.

Here’s a stock for you to take a closer look at….

 

QUICK FACTS

Ticker                                      ARR

Industry                                  Residential REIT

Recent Price                         $7.49

Market Cap                            $362 m

Shares Outstanding            49.2 m

Average Volume                   856,907

Dividend Yield                      19.4%

Website                                  http://armourreit.com/

 

COMPANY DESCRIPTION

ARMOUR Residential (NYSE: ARR) is a Maryland based REIT investing in residential mortgage backed securities.  Their portfolios include adjustable-rate (5%), hybrid adjustable-rate (58.5%), and fixed rate mortgage-backed securities (36.5%).

All of their securities are issued or guaranteed by Fannie Mae, Freddie Mac, and others.  Their portfolio’s worth about $4.7 billion as of June.

This REIT takes investors money, leverages it up, then buys mortgage backed securities.  They capture the difference between their borrowing costs, and the yield on the debt.

Here’s another advantage… If you hate taxes then you’re going to love REITs.  Because they are designated a REIT, they can pass along earnings directly to you… without paying corporate taxes on the money.

The catch is they have to distribute 90% of their income to investors.

All that means is that your dividends get fatter!  Now, let’s look at the numbers…

 

FINANCIALS

Revenue in the first quarter jumped, reaching $13.7 million of interest income.  Now, it’s a great number, but quarter over quarter, comparisons aren’t significant because the company raised capital, and has been increasing their asset base.

ARMOUR management has been aggressively raising capital.  The most recent raise was for almost $118 million in cash.  These funds are being deployed into new assets paying out high yields.

Ultimately, it means big cash flow for the company, and big earnings.  Eventually those earnings make their way into the shareholder hands as dividends.

Speaking of dividends, the board of directors recently set their monthly dividend rate at $0.12 per share… through the third quarter.  That means, if you’re a holder of the stock by July 15, and keep holding for the next three months, you’ll be guaranteed a payout of at least $0.36 for the quarter.

 

KEY METRICS ANALYSIS

Trailing P/E                                        5.9

Price / Sales                                      20.8

Return on Assets                             1.1%

Insider ownership                            2.9%

Short Ratio                                        0.6x

Current Ratio                                    0.03x

Total Debt To Equity                         NA

 

RECENT EVENTS

As we mentioned above, on June 14, 2011 ARMOUR put out a press release announcing their dividends schedule.  Their Q3 2011 monthly rate is $.12 a share.  The holder of record date is the 15th of each month in Q3.  So there’s still ample time to get in on this while the getting’s good.

 

MANAGEMENT TEAM

Scott J. Ulm – Co-CEO, Vice Chairman, CIO

Jeffrey J. Zimmer – Co-CEO, Vice Chairman, CFO

 

STOCK ANALYSIS

Chart courtesy of stockcharts.com

 

After bottoming out in mid 2010, ARR has been a steady climber.  The stock recently retreated to the 50-day moving average, and is now bouncing higher.  And we continue to trade well above the 200-day moving average.

ARR’s 52-week low was $6.10 and the 52-week high was $8.33.  Right now the stock is trading at $7.49.  The 50-day moving average is near $7.43 a share and the 200-day moving average is at $6.94.  The company has a market cap of $362 million and 49.3 million shares outstanding.

 

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