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Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.” ― Sam Ewing
Today, we take an in-depth look at one of few concerns connected to the housing market that should benefit from the recent sharp rise in average mortgage rates. The average 30-year mortgage rate now stands just over five percent. This has risen just over three percent a year ago as the Federal Reserve has embarked on a monetary tightening effort as inflation has reached the highest levels in four decades. The company appears to be a rock-solid inflation play given its business model. With the shares selling under book value and a 9.5% dividend payout, the stock looks poised to deliver a 15% to 20% return over the next year. Hardly a “home run,” but in the current market, more than an acceptable performance. A full analysis follows below.
Seeking Alpha
Company Overview:
New Residential Investment Corp. (NYSE:NRZ) is a New York City-based portfolio manager structured as a real estate investment trust with a focus on the residential mortgage market. Its ~$40 billion portfolio includes mortgage servicing rights (MSRs), mortgage origination and servicing entities, residential mortgage-backed securities, properties, and mortgage loans, amongst others. New Residential was formed in 2011 as a subsidiary of Newcastle Investment Corp. (now Drive Shack (DS)) and was spun out in 2013, with shareholders of the latter receiving a share of the former on a 1:1 basis. Its first trade was transacted at $14 a share when giving effect to a reverse 1-for-2 split in 2014. Shares of NRZ trade just over $10.50 a share, equating to a market cap slightly below $4.9 billion.
Company Overview (February Company Presentation)