Climbing Income at Ladder Capital

05/14/2018 5:00 am EST


Brett Owens

Chief Investment Strategist, BNK Invest, Inc.

My goal is to always provide my subscribers with at least five income ideas that are buyable at any given time, explains income expert Brett Owens, editor The Contrarian Income Report.

Longtime readers may remember several “overheated” months in the income world in which I’ve struggled to meet my self-imposed mandate! Fortunately for us, the Fed, rising rates and a volatile stock market has many investors worried. These broader fears are helpful for us in finding bargains.

Today we have high yields to buy. Each security I recommend boasts the 1-2 combination we love — a generous yield and price upside potential.

Ladder Capital (LADR) has retaken the top spot after management intentionally let a buyout offer for the company fizzle. This is great news because Ladder is more valuable to us as an independent firm (and publicly traded income source). Thanks to its recent price pullback, the shares now yield 9.1%.

Ladder has a nuanced business model that confuses many investors and money managers. But at heart, it’s a commercial mortgage lender. The more loans it writes, the more money it makes.

Its weighted average loan-to-value (LTV) ratio is a conservative 67%, which means they have a sizable 33% equity cushion again real estate price declines.

Contrast this with your average homebuyer who has, at most, a 20% equity cushion via his or her down payment. And in most cases, as we saw during the housing crisis, it’s much less! This is A-1 credit quality.

Ladder’s dividend is well covered by profits, too. Its core earnings-per-share (EPS) of $1.54 for fiscal 2017 is plenty to pay investors their $1.26 per share in yearly dividends. The firm’s primary asset is the expertise of its senior management team, which averages 28 years of industry experience.

Their interests are well-aligned with ours, thanks to their significant skin in the game. Insiders own $199 million of equity — about 12% of the firm’s $1.5 billion market cap.

It was in their best financial interest to let this unsolicited buyout offer die on the vine. Why would they trade in this cash cow? Why would we? Let’s lock in 9%+ on Ladder while it’s on sale. Action to Take: Buy Ladder Capital (LADR) up to $15.75.

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