Can Rithm Capital's 8.5% Yield Continue to Dance to the Dividend Tune?

Rithm Capital Corp. RITM recently announced its board's approval for third-quarter 2024 dividends for both common and preferred stockholders. The common stock dividend remains steady at 25 cents per share, the same as the previous quarter. It will be paid on Nov. 1, 2024, to stockholders of record as of Oct. 1.

The company continues to maintain a higher-than-industry dividend yield. Based on the closing price of $11.78 per share on Sept. 23, the stock has a dividend yield of 8.5%, which is higher than the industry average of 1.8%.

Image Source: Zacks Investment Research

In the second quarter, the company distributed $122.4 million in common dividends. For the third quarter, RITM's Board also declared Series A, Series B, Series C and Series D dividends per share of 69.9 cents, 68.9 cents, 39.8 cents and 43.8 cents, respectively. The dividends will be paid on Nov. 15, 2024, to preferred stockholders.

Now, the question comes if its dividend yield is sustainable and what to expect in the future.

Total assets of $42.02 billion at second quarter-end rose from $39.72 billion at 2023-end. Total equity of $7.4 billion at the June quarter-end was up from $7.1 billion at 2023-end. It exited the second quarter with cash and cash equivalents of $1.24 billion. However, its long-term debt to capital of 60.1% is higher than the industry average of 43.7%.

Net cash used in operations was at $1.2 billion in the first half of 2024 against net cash from operations of $1.2 billion a year ago. In the past five years, it generated positive net operating cash flow four times and negative cash from operations (cash used in operating activities) once.

RITM reported second-quarter 2024 adjusted earnings of 47 cents per share, which outpaced the Zacks Consensus Estimate by 11.9%. The quarterly results were supported by an improving performance in its Mortgage Loans Receivable business and solid Asset Management unit.

The company's growing strength in the Newrez business and strategic actions will likely increase the market share of its origination platform in the coming days, which can provide investors with massive growth opportunities. However, rising expenses can hamper its growth path.

Rithm Capital is shielded from the volatility of the mortgage market due to its diversified business model. Its residential mortgage origination business is expected to improve in the coming days. Also, positive impacts from the asset management business acquisition will likely benefit its cash flows and support dividend payouts. The company's efforts to further improve margins from this Sculptor (asset management) business will likely help sustain its strong yield.

Price Performance

RITM shares have gained 22.4% in the past year compared with the industry average of 28.6%.

Image Source: Zacks Investment Research

Zacks Rank & Key Picks

Rithm Capital currently has a Zacks Rank #3 (Hold).

Investors interested in the broader Finance space may look at some better-ranked players like Jackson Financial Inc. JXN, WisdomTree, Inc. WT and HIVE Digital Technologies Ltd. HIVE, each carrying a Zacks Rank #2 (Buy) at present.

The Zacks Consensus Estimate for Jackson Financial's current-year earnings is pegged at $18.49 per share, which indicates 44% year-over-year growth. It witnessed two upward estimate revisions in the past 60 days against no downward movement. The consensus mark for JXN's current year revenues suggests a 116.7% surge from a year ago.

The Zacks Consensus Estimate for WisdomTree's 2024 earnings indicates 67.6% year-over-year growth. During the past two months, WT has witnessed three upward estimate revisions against none in the opposite direction. It beat earnings estimates twice in the past four quarters and met on the other occasions, with an average surprise of 5.9%.

The Zacks Consensus Estimate for HIVE Digital's current-year earnings suggests a 63.6% year-over-year improvement. During the past month, HIVE has witnessed one upward estimate revision against none in the opposite direction. The consensus mark for current-year revenues is pegged at $125.2 million, indicating a 9.4% increase from a year ago.

To read this article on Zacks.com click here.