Ready Capital(RC)

Ready Capital Corporation

Stock: RC

Rating: Good

Author: Waleed M. Tariq

Summary

  • Rising interest rates may hurt Ready Capital’s short-term success.
  • The company’s dividend yield is above average, but growth is volatile.
  • I’m neutral on the stock since, despite being a respectable income source, it has no dividend growth history.

Bullish

  • RC is one of 14 non-bank SBLCs with an SBA license and preferred lender designation.
  • RC’s return is greater than that of the FTSE¬†US Real Estate Stock’s 9.67%, and the firm has $250 million in cash assets to cover dividends.
  • Since Q1 2020, the firm stock has been rising, exceeding the S&P 1,500 mREITs total return, lagging ABR.

Bearish

  • RC’s floating-rate loans face rising short-term rates. Rising rates limit the motivation for borrowers to refinance, which hurts RC.
  • RC’s earnings growth is predicted to be poor because to the uncertain market, leading to a disappointing annual consensus EPS prediction.

Headwinds from Rising Interest Rates

  • With the last 25 basis point interest rate hike in March and forecast hikes through 2023, the yield curve has inverted, resulting in short-term interest expenses surpassing long-term interest revenue.
  • Fixed-rate assets are recorded under fair value rules, susceptible to an impaired penalty if they yield lower returns than swaps and treasury rates.

Investor Returns

  • Investors evaluate the yield and consistency of mREITs’ dividends. ABR’s dividend growth is solid.
  • ABR lags RC in yield and quantity despite similar payout ratios.

RC vs arbor realty trust: dividend yield

  • Both companies are good long-term diversifiers, with RC having a higher yield and ABR more steadiness.

Ready Capital vs Arbor realty trust: dividend % change

  • In terms of its growth, ABR totally outmatches RC with its 9 years of straight dividend increase with a three-year CAGR of approximately 11% and a five-year period CAGR of 17.28%, contrasted to RC’s 3.28% and 1.628%, respectively.
  • The stock has an average target price of $17, but it has historically underperformed. Investors should focus on payouts rather than price growth.

Line Graph Chart with Ready Capital

Conclusion

  • Rising interest rates imperil the company’s earnings for its float rate loans. High and sustainable dividends lack continuous growth, as in related stocks.
  • Ready Capital is an income stock. Strong headwinds and disappointing predicted financial performance may cause a 2022 share price fall, as a result I rate it a hold.