Winners sometimes move in a pack.
Right now, the financials are producing a load of winners.
They includeWalter Investment Management (
), up 119% since the market's low in June;Ocwen Financial (
), up 138% in the same period; andNationstar Mortgage Holdings (
), up more than 80% until Wednesday's rout.
All belong to the Finance-Mortgage & Related Services
industry group, which was No. 1 among 197 groups as of
Wednesday's IBD. Add a fourth to the winners list:Home Loan
Servicing Solutions (
), a February IPO that has risen 43% since June 1. Home Loan
Servicing is different from the other three stocks in one
respect: It pays a dividend. The dividend of 11 cents a share is
paid monthly. The annualized yield is 6.8%.
Home Loan said in its 10-Q for the third quarter that it
intends to distribute "at least 90% of our earnings in the form
of monthly cash dividends." Unlike companies that operate under
pass-through arrangements, Home Loan isn't required by law to pay
out that much of a percentage in dividends.
The company doesn't originate loans, but acquires and services
them. In March, Home Loan used proceeds from its initial public
offering to buy a $15.2 billion mortgage-servicing portfolio from
Ocwen. Later, Home Loan made four more purchases from Ocwen.
Home Loan plans to acquire additional assets -- at least for
now, chiefly from Ocwen -- by using cash flow in excess of the
dividend and by issuing additional shares when appropriate.
Earnings were 33 cents and 34 cents a share in the past two
quarters vs. losses of 1 cent a share in the year-ago periods.
The Street expects EPS of 39 cents in Q4.
Risk factors are tied to the housing market. While real estate
appears to be rebounding, a second round of increased
delinquencies and defaults would hurt Home Loan. Also, if things
got too good, a sharp increase in mortgage prepayments would hurt
For investors, an additional risk is a secondary offering.
While none is scheduled, Home Loan expects to make such a move
"from time to time," which would dilute shares.