New Residential Investment Corp. (NRZ) — an aggressive stock for 2021 — is a finance real estate investment trust (REIT) that faced near-collapse during the early days of the pandemic-fueled economic crisis, explains Tim Plaehn, editor of The Dividend Hunter.
Due to disruptions in the financial markets during the 2020 first quarter, New Residential sold off $28 billion in investment assets, reducing the portfolio by 61%. The sales were made to preserve book value, which still took a 34% hit—down to $10.71 at the end of the 2020 first quarter.
To preserve cash, the company slashed the dividend by 90% to $0.05 per share paid in May 2020. The previous $0.50-per-share dividend had been paid since the last increase in June 2017.
From core earnings of $0.61 per share for the 2019 fourth quarter, New Residential was in survival mode by the end of the 2020 first quarter. After selling off most of its investment portfolio by the end of the first quarter, New Residential went quickly to work to rebuild the company's book value and core earnings.
In June, New Residential doubled its common stock dividend to $0.10 per share. For the second quarter, core earnings came in at $140.2 million, or $0.34 per share, and the book value was $10.77. Cash on hand of $1.077 billion at quarter-end was up from $360 million at the end of the first quarter.
At that point, the company was again looking for investment opportunities. For the second quarter, the fledgling mortgage origination and servicing business generated $205 million of pre-tax income.
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In September, the common shares dividend was again increased five cents to $0.15 per share. You can see where the New Residential board is going with its dividend recovery plans. For the third quarter, core earnings were $131.6 million, or $0.31 per share. Book value increased to $10.86.
Of greater interest was the massive increase in origination and servicing profits. Origination posted a pre-tax income of $312.3 million, up 72% compared to the second quarter. Servicing pre-tax profits of $30.3 million were up 24% quarter over quarter.
To recap, coming out of the 2020 first quarter coronavirus related market crash, New Residential has been slowly rebuilding its investment portfolio.
Still, at the same time, it has profited greatly from the surge in home buying and mortgage refinancing. New Residential jumped into the mortgage origination business in September 2019 when it acquired Ditech Holding Corp. The move into mortgages with the newly named NewRez was perfect timing.
While the New Residential share price has marched steadily higher from the spring lows, there remains tremendous upside for investors.
It is possible, even likely, that the company will in 2021 spin-off NewRez as a separate company. If that happens, expect an investment in New Residential at the start of 2021 to be doubled by the end of the year.