Ready Capital Corporation
Author: Waleed M. Tariq
- 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.
- 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.
- 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.
- 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.
- Both companies are good long-term diversifiers, with RC having a higher yield and ABR more steadiness.
- 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.
- 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.