I’m Buying NorthStar Realty Finance

A recent transaction obscures a huge dividend here

Jul 8, 2014 at 1:34PM

In May my Special Situations portfolio set up a synthetic long position on the pre-split NorthStar Realty Finance (NYSE:NRF). I'm back today to announce another acquisition -- the post-split shares of NorthStar Realty Finance, a REIT yielding a very high dividend that should drive the stock price higher.

Why buy the REIT?
NorthStar also split off NorthStar Asset Management (NYSE:NSAM), the more attractive business of the two. This latter company is a high-growth, low-capital business, and I think it could double in the next couple years as its fees from running the REIT and other businesses explodes upward. Why not buy more of that?

The major reason is that the options position already gives me huge exposure to this segment. And it's a high-multiple stock, which could drop if the market drops. So I'm not buying more largely for reasons of portfolio management.

In contrast, I think the REIT offers significant upside and lower downside through its high dividend. Pre-split, NorthStar was paying out about 90% of its funds from operations as a dividend. With management expecting FFO to clock in at $1.58-$1.70 this year, that would put the dividend around $1.50 at the same payout rate. So at today's prices, you're receiving nearly a 9% yield. That's much too high.

If you figure a 6.5% yield is normalized and that the REIT can grow income at 3%-4% annually, that implies a total yearly return of better than 10%. That's still attractive. So a 6.5% yield would put the stock at $23 per share and you get 9% a year while you wait. Add it all up, and I think shareholders could get up to 50% upside over the coming year.

Foolish bottom line
So my Special Situations portfolio is putting $3,000 -- about 4% of its capital -- into NorthStar Realty Finance. If the stock lingers around today's prices, I expect to buy more.

Follow me on Twitter: @TMFRoyal. And check out my dedicated discussion board.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.

Jim Royal owns shares of NorthStar Realty Finance. Jim Royal has the following options: long January 2016 $17 calls on NorthStar Realty Finance. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers