Important Updates for Investors
Carla Pasternak's Premiere Issue of High-Yield International Just
Released
Income expert Carla Pasternak's debut issue of High-Yield
International covers a Taiwanese manufacturer yielding 9.5%... a
rare Mexican monopoly yielding 13.4%... and other top-performing
investments yielding up to 19.0%.
Government's Biofuel Timetable Could Spell +15,900% Growth
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The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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Thanks to a Pullback, This REIT Now Yields 6.7% |
Published:
May 3,
2007
Gramercy Capital Corp. (NYSE: GKK) is a real estate
investment trust (REIT) that makes loans to commercial real estate
developers. Like other stocks in the commercial real estate finance
sector, GKK has come under pressure amid concerns about high default
rates in the subprime residential mortgage market. From a record high of
$38.30 in early February, the shares plunged nearly -25% to a low of
$29.11 in mid-March.
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Because the company remains
fundamentally sound, we view this recent sell-off as a buying
opportunity. The commercial real estate market remains buoyant and bears
little resemblance to the weakening residential sector. For starters,
most commercial mortgage REITs like Gramercy don't originate or invest
in subprime residential mortgages. Instead, they focus on commercial
loans and mortgage-backed securities, where default rates remain stable.
Mortgage REITs earn profits by borrowing money at a cheap rate and then
loaning or investing at a higher rate. When rising interest rates push
borrowing costs higher, profits get squeezed. While many of Gramercy's
peers were hurt by shrinking interest rate spreads, GKK continued to
prosper, largely because it originates most of its loans and therefore
has more control over the terms.
Management has clearly demonstrated its ability to grow its asset base
in a rising interest rate environment. In fact, the company nearly
doubled its asset base last year and maintained a huge spread of 3.9%
between its borrowing costs and lending income. That's well above the
industry average of 2.2%. As a result, earnings climbed +43% last year,
and shareholders enjoyed a whopping +39% dividend increase.
Going forward, we expect more of the same -- but we do have some
reservations. A slowing U.S. economy could affect profitability,
especially since recent efforts to match higher loan yields with higher
borrowing costs forced management to resort to lower-quality loans. As a
result, about half of the company's loan portfolio is backed by
lower-quality (but still investment-grade) loans. These loans could have
an adverse impact on results if commercial real estate loses value in a
slowing economy.
That said, earnings are expected to continue growing at a healthy
double-digit rate both this year and next. The company also recently
bought a package of property leases, and rental income from these
properties should contribute a stable source of revenue.
Action To Take ---> Mortgage REITs
are high-risk/high-reward investments, but GKK is one of the more
successful firms in the sector. With a P/E of about 11 times next year's
projected earnings and an above-average yield of 6.7%, the stock is
attractively priced right now.
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Editor's
Note: Carla Pasternak's model portfolios focus exclusively
on investment opportunities with ultra-high yields. In fact, in each
of her monthly High-Yield Investing newsletters she
provides readers with an entire portfolio of stocks, funds and
preferreds that are delivering annual dividend yields of +10% or
more. That's right -- in order to even be considered for
inclusion in this portfolio, an investment
must deliver cash payments of at least 10% per year. Visit
this link to learn more about Carla Pasternak's High-Yield
Investing newsletter.
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Good investing!
Carla Pasternak
Editor
High-Yield Investing
http://www.StreetAuthority.com
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receive in-depth guidance on today's leading income investing
opportunities each month, plus access to several model portfolios,
please subscribe to Carla Pasternak's premium newsletter -- High-Yield
Investing. |
Carla
Pasternak draws on a variety of financial backgrounds to make profitable
calls on income-generating stocks for her readers.
Carla has
been employed in the investment industry for more than two decades. In
addition to her work as a writer for several other nationally recognized
financial publishers, her previous experience includes a position as
President of a well-respected investor relations firm. She has also been
writing shareholder reports for public companies (annual reports,
speeches, corporate profiles, slide shows, etc.) since 1980.
A highly
successful investment analyst, Carla specializes in high-yield,
income-paying stocks. In that pursuit, she's always mindful to select
companies that not only pay rich dividends, but that also have the
potential to deliver strong long-term capital gains.
On the
educational front, Carla holds both MBA and Ph.D. degrees. When she's
not watching the market, she's teaching business courses at the college
level and managing several million dollars in portfolio assets.
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