New York Mortgage Trust: Good Opportunity For Growth Investors, Not So Much For Long-Term Income Investors

New York Mortgage Trust: Good Opportunity For Growth Investors, Not So Much For Long-Term Income Investors


NYMT delivered solid Q3 results and they are heavily refinancing the company for better future growth.

The stock is undervalued at the moment, so it could be a potential target for growth investors.

The company’s dividend is stable right now but this stability highly depends on economic trends.

All_About_Najmi/iStock via Getty Images Investment thesis

New York Mortgage Trust, Inc. ( NYMT ) is investing heavily and refinancing to lower NYMT’s cost of capital. This is hurting the results in the short term but will provide financial sources over the coming years. The current valuation is attractive for growth investors and the current and forward dividends also look promising. However, this dividend policy can only remain stable as long as the general economic conditions stay favorable for NYMT, so income investors can be happy with the current dividend yield of over 10%. But any income-seeking investor should take into consideration the economic cycles and the effect of that on NYMT’s dividend in the long term. Business Model

New York Mortgage Trust is a real estate investment trust (“REIT”) for U.S. federal income tax purposes in the business of acquiring, investing in, financing, and managing primarily mortgage-related single-family and multi-family residential assets. Their objective is to deliver long-term stable distributions to the stockholders over changing economic conditions through a combination of net interest margin and capital gains from a diversified investment portfolio. NYMT’s investment portfolio includes credit-sensitive single-family and multi-family assets.

Their revenue comes from their net interest income earned on rental properties and non-interest income, which is the income from equity investments. The company receives most of its income from its mortgage-backed securities portfolio and the majority of its income revenue comes from single-family residential assets in Florida, Alabama, and Texas. Source: Q3 Results Earnings Call Presentation Financials & Earnings

Q3 results

The company continued to deliver solid results in the third quarter with a bit of disappointment. NYMT took some actions that hurt its Q3 results but will lower the cost of its capital. The company had one-time charges in the quarter, including $3.4M in expenses for the early redemption of 7.875% Series C preferred stock, which was refinanced into 6.875% series F preferred, lowering NYMT’s cost of capital by 100 basis points. NYMT’s Q3 EPS of $0.10 came in a penny shy of the average analyst’s estimate of $0.11 and decreased from $0.11 in Q2 2021. Q3 total net interest income of $31.0 million missed the consensus estimate of $37.4 million and fell from $31.5 million in the previous quarter.

There will be some change in the leadership as well for 2022. Steven R. Mumma, who has served as Chief Executive Officer since February 2009, will transition in January to the role of Executive Chairman of the company. Jason T. Serrano will succeed Mr. Mumma as Chief Executive Officer of the company, effective January 1, 2022. Jason T. Serrano was recruited to the company as the new President in January 2019. Valuation

NYMT has a forward Non-GAAP P/E ratio of 7.66 compared to the sector median of 11.06. On Seeking Alpha no peers are shown, but NYMT operates in the Mortgage REIT sector and we have identified some comparisons. I chose Arbor Realty Trust, Inc. ( ABR ) for comparison because it is a well-known mortgage REIT. ABR has a forward P/E ratio of 9.22. When evaluating NYMT’s intrinsic value, we therefore see an undervalued stock. For the calculations, I used Graham’s DCF model . For the last 4 quarters, I used the EPS (TTM) which is $0.51. To the expected growth rate, I added a modest 2% due to the interest rate rise in 2022. Finviz analysts also calculated a forward 5-year EPS growth of 6.59% for NYMT. If we also take a look at NYMT’s Price-to-Book ratio, we can see that the P/B is almost at its lowest point in 2021, so this strengthens the valuation of the stock. Source: Seeking Alpha

Put all this data together and we can have an intrinsic value for NYMT stock of between $10-12. If we believe Finviz analysts are right about future growth numbers, and we find the P/B ratio realistic, we can see that the stock is undervalued at the moment. Based on these factors, I think NYMT is a good buy for growth investors, but not so much for income investors in the long term. Company-specific Risks

REITs are generally a high competition industry. The major risk factors tend to be external ones but there are some internal […]

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