PennyMac Leads Group In Composite Rating, Dividend

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Real estate investment trusts are known for paying hefty dividends.

Among the 87 stocks in the Finance Property-REIT industry group that trade above 15 a share, about one of every four offer a dividend yield of 5% or more.

PennyMac Mortgage Investment Trust ( PMT ) is the group's No. 1 in Composite Rating with a 96 and tops in dividend yield at 10.2%.

PennyMac states in its 10-K that the company's goal is to provide returns to investors over the long term, "principally through dividends and secondarily through capital appreciation."

While this isn't news -- REITs are required by law to pay out most of taxable income as dividends -- it's a fitting reminder. The greedy investor will sometimes expect more capital appreciation than is realistic out of what is essentially a pass-through investment.

PennyMac's capital appreciation has lagged the market since the initial public offering in August 2009. The stock has risen 13% since the closing price at its IPO while the S&P 500 has jumped 42%.

So far this year, however, the reverse is true. PennyMac is up about 30% vs. the S&P 500's 11% gain.

PennyMac invests primarily in distressed mortgage assets. The company's greatest exposure is in California and Florida.

The company is benefiting from a housing market that many market watchers believe has bottomed.

At the recent earnings call in August, CEO Stanford Kurland said he didn't think the bottom was "quite there yet on a national basis." He said the company's forecasting model expects further declines in some areas, but PennyMac remains "cautiously optimistic."

The company suffered a loss of 8 cents a share in 2009. In 2010, earnings were $1.44 a share as revenue leapt 1,815%. Last year, EPS rose 67% as revenue climbed 192%.

The Street expects EPS to rise 20% this year on a 192% sales leap.

Pennymac's most recent breakout from a cup with handle offered a possible buy point at 19.89. However, volume was weak as it cleared the potential entry.

The stock recently returned to its 10-week line. Volume on the decline was disturbingly strong, but also strong as it bounced up.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas

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