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Take a look at the Press Release that came out this morning from New Residential Investment (NRZ). We’ve truncated it here for readability:

New Residential Investment Announces Authorization of Preferred Stock Repurchase Program of Up to $100 Million

NEW YORK--(BUSINESS WIRE) -- New Residential Investment (NYSE: NRZ) announced today that the Company's Board of Directors authorized the repurchase of up to $100 million of the Company's preferred stock, which includes:

  • 7.5% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock
  • 7.125% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock and
  • 6.375% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock

through December 31, 2021 (the “preferred stock repurchase program”).

In addition, the Company has recently commenced purchases of its common stock in the open market under its existing common stock repurchase program, and is also prepared to begin purchases of its preferred stock.

This is very good news. But the best news of all was when the CEO of the company, Michael Nierenberg announced in the conference call discussing the third quarter results that were just announced a few weeks ago, that he believes the book value of the company is between $16 and $19 a share. When we heard it in the conference call, we were astounded. We know that the company has been restructuring the firm, selling assets and raising cash to get into a much more liquid position, as the CEO has stated, and take advantage of opportunities in the market. But we had no idea that the company had progressed so far in such a short time (since March.)

Let’s put this into perspective. For 3Q20 the company stated that the book value on September 30 is $10.86, up from $10.77 at June 30. It would have been $11.01, they stated, but due to the refinancing of 11.00% senior secured term loan into 6.25% senior unsecured notes, the discount obtained caused a booking entry of -15 cents. (Of course, refinancing their debt to lower rates is always a good thing. In this particular refinancing, it will save the company $30 million a year.) Additionally, the CEO has stated in the past that there is additional book value in off-balance-sheet entities that would add up to $3 a share in book value. Now at $16-19, if we can take him at his word, this is a whole different world.

If you care to look at the 3Q20 corporate presentation you can see it HERE. In particular, see slide #5 for details.

Now, we weren’t terribly pleased with the amount of this book value increase. We had been hoping for more. But we are patient and we believe in the CEO, one of the smartest people on Wall Street. The dividend, which was $2.00 a year last year, was cut to 20 cents in March (not a mis-print), raised to 40 cents in June, and raised again to 60 cents on September 23. We fully expect the dividend to be raised to the $0.80 to $1.00 level on or around December 23.  As to 2021, we are hopeful that the company can raise the dividend to the $1.50 level by the end of the year. If this were to happen and book stays in the $16-19 range, we would expect the stock to approach the $15 level again. At the current price of $7.85 as we write this (up from $7.40 on Friday, due to the announcement above), New Residential offers what we feel at The Bull Market Report is one of the greatest values we have seen on Wall Street in the past 12 months.

The preferreds are having a strong day today as well. Remember, these issues with coupons of 7.5%, 7.125% and 6.375%, historically trade at $25 a share. They are trading now at $22.00, $22.80, and $18.90 respectively, all of them up about 7% today. Their effective yields are all around 8.5% at the moment. If they move to the $25 level in the next year or two, this will provide a nice capital gain, in an area of investment (preferred stock), that generally gives you no capital gains, just a strong dividend.

Note: Todd Shaver has positions in the common stock and the three issues of preferreds.

Good Investing,
Todd Shaver, Founder and CEO
The Bull Market Report
Since 1998