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Two Harbors Investment Corp. Message Board

  • sunshinegirl319 sunshinegirl319 Jan 8, 2013 1:59 PM Flag

    To OH577

    Last post from Sunshinegirl for suggestions on REITS, was for you. This was my first post and thought I was directing to you. Thanks for any help you may have, I have gone back and read all your posts from the past and see you have some history in investing. I am not seeking investor( brokerage) advice just from one investor to another stuff.....:) Nice to have this avenue............

    Dottie in Florida

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    • As far as reits go, I am a fresh fish.....
      I did about three nights worth of research on reits that I felt I had money to apply to to make it worth while.
      So my price range was around 0 - $12.
      Now TWO was my first pick, but when I found out about the spin off SBY (I think is the ticker) I got spooked...
      1 - If they are spinning off, what earnings are going away from TWO? at this point, TWO is only predicted to make another $.20 in year EPS than NYMT (By First Call).
      2 - WHere is the price for theis spin off going & why is the IPO start price ($18) so much higher than the parent company (TWO)?? & what about a dividend??
      SO those points get me scared off from TWO.....I dont know how earnings will be affected, hence lower earnings, 90% payout of earnings to shareholders in divy. If they start selling things to keep their divy up they will be cutting their throat, if the divy drops.. look out...

      So that left acouple other reits to look at for me .. I think I came up with ARR, TWO NYMT & DX....
      ARR - their last earnings were .27, divy .24 projected year EPS $1.17 earnings are in decline BETA .42 Inst. Owner 29.4% Payout rate 155.56 (How able they are to pay divy) (lower number is a better number) shares outstanding 309M

      TWO - we already went thru that one. earning .33 divy .40 EPS 1.33 BETA.84 OWNER 52.4% Payout 187.95
      shares 295M
      NYMT - earnings .27 divy .27 earning1.13 BETA .42 Owner 12.% Payout 134.12 shares 49m

      DX - earnings .33 divy .29 Year EPS 1.29 BETA .88 Owner 32.9% Payout 61.59 shares 54M

      Now like I said, I want to park money, I want a divy.. so the low BETA for NYMT is great.
      the low float is good too, for one, any good news, there is a limited supply of shares, price could jump fast, two - the short ratio is high on this..( which I dont understand why but) so it could really go if they came out swinging...
      So for a small compnay (less than 500M) they are putting out the same EPS, same divy, have lower volatility, FFO looks ok, was given a "very bullish" rating from fidelity (notthat I go by this AT ALL, but), has a projected 4.9% earnings growth (First Call), $.25 cash TTM, 23.13 operating margin TTM....
      SO for my money & what I want to do with a portion of it.... this seems to float around $6.25 to $7.00....so if the divy were to stay the same where it is now, I could have a good divy for a year & maybe alittle price appreciation too.... if things really go well P/E is only 6.63, TWO is 15.62, ARR is not showing, DX is 7.13 right now so if the P?E follows the earnings, you could see a 11.6% increase in stock price also, just as the P/E stands now.

      So as it stands, Im buying NYMT.....also, the technicals look good on it & it looks to have an inverted head & shoulders formed & is breaking out of the right side neckline & is follwing the Bollinger band upper line right now....so there could be a break out shortly...

      So Ive probably rattled on longer than I needed to, I hope Ive helped...
      if you want to chat on some stocks, I would oblige, I am always looking for new stocks, etc....
      the bond stocks they were suggesting.. I looked breifly at them.....I had a corprate bond fund a while back, but that got hammered when all the QE started..

      take care.......oh577

      • 2 Replies to oh577
      • Oh - I think you are confusing a few things. I will try to help.

        First off, I don't think you should get bogged down in comparing the dollar price of individual stocks. What is more relevant is the earnings you "buy" when you pay that price.

        A very simplistic way to see it is this; if I had a company I wanted to take public that was worth $1,000,000, I might decide to divide up the company into 1,000,000 parts by issuing 1,000,000 shares, in which case it could be said that a fair price would be $1 per share. Or I could decide to only issue 1,000 shares, in which case it could be said that a fair price is $1,000 per share. Either way, the company's market capitalization will be $1,000,000.

        Now let's say I'm spinning this $1mm company off from my existing company, and my existing company has 1,000,000 shares priced at $12 per share, so my market cap is $12,000,000. If I were to decide, for whatever reason, that I wanted to only divide up my spin off into 1,000 pieces, then my $12/share company would spin off a $1,000/share company! This example shows that the relative share prices are not a meaningful way to compare these companies - the $12/share company is still larger than the $1,000/share company.

        This also shows why you shouldn't target companies with a stock price in a certain range. I know it's more satisfying to own 100 or 1000 or some other round number of shares of a company, but it's really not relevant. You would do better to say, "I have X number of dollars to invest, so how can I get the best return on those dollars. I will buy whatever number of shares I can buy with those dollars." Almost all of the people who, in 1985, bought a single share of Berkshire Hathaway at $3,750 (a group which, sadly, did not include me) have done better than those who bought a larger number of shares of other companies.

        Now, in terms of what this will do to my stock price, if I just sell the shares, then my stock price probably won't move much because I've just exchanged a company worth $1,000,000 for $1,000,000 in cash. But if I give the shares to the shareholders of my existing company in the form of a special dividend, then I would expect my stock price to go down by $1/share because I've given $1,000,000 to my shareholders in the form of new stock.

        In real life, it's more messy because, as I said before, the real value that the market will give to a stock depends on the earnings that the market can expect from those companies. If I can show good earnings that are going to grow, then my stock price will go up. If my earnings are going to shrink. or become volatile, then my share price will probably go down.

        The REITS you discussed are a specific kind of REIT, known as an MREIT. You should compare these to the "regular" REITS, which are more stable, but pay a less exciting dividend rate. Why does the market allow MREITS to have a higher dividend rate? Because there is more risk attached to them. A regular REIT's dividends are pretty stable and predictable. Right now they mostly pay somewhere in the 3-4% range. Meanwhile the MREIT dividends are double digit, but may drop precipitously. If the MREIT dividends were as dependable as those for regular REITS, you can bet that their share prices would be bid up quickly until their yield was in the 3-4% range. (Don't expect that to happen in your lifetime.)

        Because of this volatility, you should carefully consider whether MREITS are the right investment for you. I own some, but they are a relatively small part of my overall portfolio. If their dividend were to drop (which would most likely cause their share price to drop) I would be disappointed, but I would not change my outlook on life.

        I recommend that you continue to learn until all of these concepts (which just scratch the surface of what you need to know) are very familiar to you before you venture into MREITs. I know that MREIT dividends are scintillating, but please believe me when I tell you that you are walking down a very well worn path when you invest in companies you don't understand, and that you will save yourself a lot of money by being sure you thoroughly understand the above concepts before you buy.

        Good luck!

      • SBY is investing in single family homes and leasing them. This isn't what Two Harbors does, so it shouldn't effect their earnings. Secondly, price of shares doesn't matter look at the Market capital no the stock price.

 
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