Ten reasons to buy RSO:
1. Income: RSO pays a $0.25/share dividend every quarter.
2. Inflation hedge: At $7/share, RSO has a 14% annual dividend rate.
3. Stability: RSO has never missed a dividend payment.
4. Visibility: FBR Analyst for RSO quote.
>"Analyst Gabe Poggi said that he has the opportunity to be on the road with RSO management earlier this week and walked away confident in management's ability to execute on its note repurchases while maintaining its $0.25 per quarter cash dividend in 2010."<
5. Visibility: CEO provides dividend outlook for 2010 - not just one quarter.
>"we are now poised to grow book value as well as to deliver the $1.00 dividend per share that we have projected for 2010."<
6. Opportunistic: CEO quote on purchasing bonds for pennies on the dollar:
>". . . subsequent to offering we bought $33.5 million of bonds at a 74% discount to par or $0.26 on the dollar. In the first quarter, in addition, we have already purchased an additional $20 million of bonds bringing it to $53.5 million after the offering, and are seeking to add another $40 to $60 million before our next call."<
7. Growth: CEO quote on accretive value of previous discounted purchases:
>"We have over $60 million of discount that will accrete into book value over the next few years due to the purchase of discounted and distressed at the time, CMBS mostly AAA and bank loans."<
8. Stability: CC addresses deleveraging:
>"...we see our real estate leverage drop down to 2.1 times in the first quarter of 2010. We’re well on our way to reducing the real estate leverage to the 1.7 times target..."<
9. Bright Future: CEO on improving value of the portfolio.
>"We continue to see price appreciation this quarter as the portfolio has moved to an approximate value of $800 million. This improvement has led to our ability to increase our cushion to our over-collateralization test as well as upgrade tremendously, in my opinion, the quality of our loan book. This in turn helps us keep the cash flow machine going."<
10. Stock appreciation: Given stable companies like ED pay a 6% dividend rate and MLPs like BBEP seem to be settling into a 9% to 10% distribution rate, RSO’s stock price should be moving higher to get the dividend yield in line with other stable investments.
5 stars for you.
I agree with the theme of all these points.
Here are a few comments for you to consider that should help you to refine your arguments:
RSO isn't an inflation hedge. RSO's gains and returns on equity hopefully will outpace inflation, but that does not make it a hedge. RSO's assets and its liabilities are both dollar-denominated. That basically makes it is inflation neutral.
A company with minerals, timber, land, or operating real property and the ability to raise rents - these are all inflation hedges. RSO's loans to its customers do not increase in value as a result of inflation. They are dollar denominated.
Thanks for the input.
The reason I said RSO is an inflation hedge is because of the high dividend.
Given real estate values go up with inflation, it would seem inflation would provide even more stability/visibility to our dividend.
Of course, one would need to buy while the dividend is still high.
Does this make sense?
Your comments are always welcome.
Really, RSO is kind of a boring investment right now. In the last 6-9 months there were many uncertainties. Would the credits hold up? Would the CDO's stay within covenants? Why the stock issuance? Would they be able to execute the debt buybacks? Would they be able to maintain the dividend? All these matters are reasonably resolved now. For this year, there is pretty good clarity. There are still some uncertainties, but now it not the time to clear those up. For a time, we trade in a range and collect dividends. What's not to like.
Exdivy for your efforts.
At a beta 2.4 RSO does have RISK.
I don't know if 14% is sustainable over the long haul.
However many people are looking to divy producing stocks.
I like RSO and the fundamentals,but it could correct 10%-20%IMO
I'm prepared to hold RSO for the long haul and buy on dips.
I agree with your statement on risk (hard to avoid in this market with this congress). That is why I believe the visibility provided by the CEO is so important.
All in all, I think the dividend will be more next year than this year (if everything doesn't blow up).
BTW, I visited your museum with Remington, Russel, and others - very, very nice!