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is this dividend to good to be true

Forum: Investments
Author: [Investments] Topic: is this dividend to good to be true
bowhunter PM bowhunter
Joined: Feb 2011
Posts: 218
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Posted: 2/12/2012 9:25:50 AM

This is a mortgage REIT that my friend has owned for 2 years. In this time he claims that the stock has gone up slightly and it pays a dividend over 19 %.

What is the catch?

wallstreetcappers PM wallstreetcappers
Joined: Feb 2003
Posts: 52145
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Covers Linesmen
Posted: 2/12/2012 1:28:51 PM
The catch is that this REIT is HIGHLY leveraged, major leverage.

They have 2B in cash and almost 50B in debt.

They have about 225M shares outstanding, they pay a 5 buck dividend, so about 1.25B in cash out every year.

Last year they had revenue of 800 million, so they are paying out in cash more than they take in for REVENUE..not even talking cash flow, just revenue. It also looks like they did a secondary last year which bloated their shares outstanding to raise cash.

I dont like investing in companies that payout more than they bring in because it means they either have to raise more cash by diluting you or by adding more debt, neither is good for the health of the company.

The stock is also near an all time high, which means your yield is lower than if you had purchased a few months ago.
Forum: Investments
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