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Enjoy a 12.4% Yield with
Centerline (CHC) |
Published:
October 26,
2007
Centerline Holding (NYSE: CHC, $13.55)
is a 34-year-old real estate finance company,
formerly known as CharterMac. CHC is involved in a multitude of
financial businesses. The firm lends, invests, and manages
capital, with a focus on the commercial real estate market.
Among its activities, CHC buys tax-exempt first mortgage bonds
issued by local governments and agencies, manages a variety of
funds that invest in mortgage-backed securities, and underwrites
multi-family mortgage loans for building developers.
The company has paid regular dividends at an increasing rate
since 1997. Payouts have risen an average +6% a year over the
past five years. The current quarterly payout of $0.42 per share
equates to $1.68 per share annually. At current levels, CHC
yields a hefty 12.4%.
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With dividends of $98.6 million and free cash flow of $110
million, the firm has paid out just under 90% of its cash flow,
a level sustainable over time.
CHC traded as high as $21.87 per share this past January, but
then proceeded to fall to as low as $10.35 when the stock was
tainted with the subprime slime. President and CEO Marc
Schnitzer finally put the misconception of subprime exposure to
rest recently by stating, "Centerline does not have any single
family or subprime exposure, whatsoever."
CHC has since rebounded dramatically from its summer lows. It's
worth noting that company insiders have been heavy buyers of the
stock lately. In roughly the last six months, insiders have
scooped up almost 963,000 shares -- more than ten times what
they have sold. In August and September -- well after the credit
crunch was front-page news -- Director Nathan Gantcher added
nearly 200,000 shares to his already substantial holdings to
bring his total ownership to 458,000 shares. Many of his
purchases were made in the $15 range. Other directors
have shown similar faith.
Centerline is not without risks. While the credit crunch seems
to be easing, unexpected skeletons in the financial closet may
still emerge from this sector. That could cause numerous
difficulties in the firm's businesses. And while it is often a
positive signal, insider buying is not bulletproof. Gantcher,
for example, also bought stock in June when the shares were
trading above $19!
Even so, with Centerline trading at an attractive valuation of
just 1.0 times book value and the firm likely to sustain its
lofty dividend, downside risk seems limited.
Action To Take --->
Centerline is an attractive stock for more aggressive investors
who wish to capture a robust, double-digit yield and are willing
to gamble the summer credit crunch does not again rear its ugly
head.
Carla Pasternak
Editor
High-Yield Investing
http://www.StreetAuthority.com
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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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