John Buckingham is a leading value investor and money manager; in his newsletter, The Prudent Specul...
Top Picks 2020: Ladder Capital (LADR)
01/06/2020 5:00 am EST
Ladder Capital (LADR) 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, explains growth and income specialist Brett Owens, editor of Contrarian Income Report.
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. The firm’s primary asset is the expertise of its senior management team, which averages over 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.
Since our 2016 purchase of Ladder Capital, we've enjoyed 69% total returns (including dividends), a 24% raise on our quarterly payout, plus two special dividends.
Business is still humming along. The firm generated core earnings per share (EPS) of $0.38 in the most recent quarter and paid a $0.34 per share dividend. Its payout is well covered, and this payout ratio is plenty comfortable for Ladder, which must pay most of its profits to shareholders to maintain its tax-advantaged REIT status.
Remember, REITs don't need to retain earnings to grow their businesses provided they use debt sensibly. Even with Ladder's price appreciation, shares still pay 7.9% today thanks to its dividend raises. Don't overthink it. Buy it.
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