REITs Expert Eyes New Residential

Focus: REITS

Tim Plaehn Image Tim Plaehn Investment Research Analyst, Investors Alley

New Residential Investment (NRZ) reported 2017 second quarter results with a shockingly good quarter for earnings, says Tim Plaehn, editor of The Dividend Hunter.

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Core earnings for the 2nd quarter of $1.03 per share were almost double the $0.54 reported for the 2017 first quarter and handily covered the new, higher $0.50 per share dividend.

I listened to the conference call by management with the goal of discovering the reasons for the very large increase in profits and what could happen with earnings and dividends going forward.

From Quarter 1 to Quarter 2, core earnings increased from $155 million to $318 million. A large portion of the increase was due to a $156 million jump in net interest income due to the acquisition of $110 billion in mortgage servicing rights (MSRs) from Ocwen Financial (OCN).

New Residential is purchasing the MSRs for $400 million.  Accounting rules forced New Residential to immediately book much of the lower future servicing fees as interest income in the second quarter.

Management noted that the MSRs are being transferred to NRZ as regulatory approvals allow, so there will be a similar large income boost compared to previous quarters when the third quarter results are announced.

Here is my read on the future of NRZ as a high yield stock.