Shares of mortgage real estate investment trust (REIT) New Residential Investment (NYSE:NRZ) fell just over 10% at its worst point on Monday. The stock trickled lower throughout most of the day, ending the session with a loss just shy of 10%. But the bad news driving the drop had a silver lining attached.
The big story for New Residential was its third-quarter earnings report. Net income per share of $0.19 was down from $0.54 in the same period of 2019. That's a huge 65% decline. The REIT's dividend, meanwhile, was $0.15 per share, versus $0.50 in the year-ago period, a 70% reduction. That is hardly surprising given the global pandemic. As the price drop indicates, investors were displeased with the update.
That said, the quarterly results weren't all that bad if you compare them to the second quarter of 2020. That was a period when efforts to control the spread of the coronavirus had economies around the world shut down and markets were in turmoil. In fact, the third quarter's income of $0.19 per share was a massive improvement over the second quarter loss of $0.02. And the $0.15 per share dividend in the third quarter was a huge 50% increase over the $0.10 in the prior quarter. So in some ways, third-quarter results show that New Residential's business is improving, even though it may not be back to where it was before COVID-19.
Mortgage REITs are a bit more complex than traditional property-owning REITs. New Residential adds even more layers of complexity because it also originates mortgages and acts as a mortgage servicer. This is not an investment for risk-averse investors looking for a "set it and forget it" dividend stock. And right now, things are even more difficult than usual because of the pandemic. All but the most aggressive investors would probably be better off elsewhere.