Buy This Dividend Stock Paying a 9% Yield with 100% Capital Appreciation Potential

On April 25, finance REIT Rithm Capital (RITM) reported the company’s first-quarter results, and the financials reinforced the fact that the RITM stock price is severely undervalued.

Rithm reported earnings available for distribution of $0.52 per share for the quarter. A year ago, earnings came in at $0.48; two years ago, the number was $0.35 per share. Rithm has grown by acquiring companies to diversify its business. Over the last several years, the company stopped being a mortgage servicing rights (MSR) focused REIT. This table shows the diversified business lines operated by Rithm Capital.

The diversified business lines continue to grow, but the growth has not been reflected in the share price. RITM earnings are roughly $2.00 per share (and growing), with an $11.00 share price—giving the stock a 5.5 price-to-earnings (P/E) ratio. Combine that with a $1.00 annual dividend for a 9% yield, and the naked eyeball can see that RITM shares are “stupid cheap.”

In the recent earnings report presentation, Rithm provided this analysis of the potential RITM share price.

I have been telling my Dividend Hunter newsletter subscribers that I believe RITM is worth at least $18.00 per share, and it’s nice to see I hit the middle of the range.

Rithm Chairman and CEO Michael Nierenberg is also frustrated with the low share price valuation. Here are some of his comments from the earnings conference call:

I’m hopeful that we’ll have some kind of capital action by the end of 2025 that unlocks a lot of value here because I do think the equity is extremely undervalued and we’re excited to actually get it to the right place.

It is hard to predict what the company will do. It could change from REIT status to a corporation. A spin-off of a division is possible. Lots of ideas have been floated. I am heartened by the statement that something will be done this year to increase the share price.

In the meantime, investors collect a 9% dividend with 200% coverage. Not a bad wage for waiting.

— Tim Plaehn

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Source: Investors Alley