We recently compiled a list of the 10 Very High Yield Dividend Stocks With Upside Potential. In this article, we are going to take a look at where Rithm Capital Corp. (NYSE:RITM) stands against the other stocks with over 8% dividend yield.
High yields have always sparked debate between analysts and investors. Analysts typically advise caution with extremely high yields, while investors often find them attractive. Analysts’ concerns are valid; high yields can sometimes be warning signs of financial instability within a company. Many companies offering exceptionally high yields have been on the brink of cutting or suspending their dividends. That said, no company is completely out of the woods regarding its challenges, and dividend yield plays a minor role in a company’s financial difficulties. In fact, many reports have highlighted that high-yield stocks have performed well over the years.
Newton Investment Management published a report revealing that high-yield dividend stocks outperformed the broader market during high inflationary periods from 1940 to 2021. The report also showed that investment portfolios with high-yield dividend stocks outperformed those with low or no dividend stocks in terms of value-weighted performance. High-yield portfolios outpaced low-yield ones by 199 basis points and zero-yield portfolios by 330 basis points. This outcome is informative, yet it does not provide insights into the market conditions of that time, offering only a general overview of high-yield stock performance. Analysts have been particularly attentive to how dividend stocks perform during periods of market volatility, recognizing that the demand for regular income is most keenly felt during these times. Therefore, analysts recommend considering stocks with high yields only if these companies also demonstrate strong dividend growth streaks.
The S&P High Yield Dividend Aristocrat Index seeks to track the performance of companies with at least 20 consecutive years of dividend growth with an average dividend yield of 3%. According to a report by S&P Dow Jones Indices, in a backdrop of slowing growth but rising inflation, the index achieved a monthly average total return of 0.39% from 1999 through April 2024, surpassing the benchmark by approximately 120 basis points. Historically, inflationary environments have typically benefited short-duration stocks like Dividend Aristocrat companies. During slow growth phases with declining inflation, the performance of the High Yield Dividend Aristocrats has aligned closely with the benchmark. The report further mentioned that the dividend growth rate for the index also surpassed inflation over the long term.
As mentioned above, when investing in dividend stocks, high yield and dividend growth must go hand in hand, as many companies have shown that it is indeed possible. Analysts typically view yields between 3% to 7% as healthy. The health of dividend stocks is often assessed based on their ability to generate cash flow and their track record of dividend growth. Investors favor stocks that not only offer high yields but also maintain or steadily increase their dividend payouts, rather than frequently cutting them. Examples include some of the best dividend stocks such as Altria Group, Inc., Verizon Communications Inc., and British American Tobacco p.l.c. that have above-average dividend yields coupled with robust dividend growth histories. To read more about strong dividend payers, have a look at Best Blue Chip Dividend Stocks To Buy.
Our Methodology:
For this list, we screened for dividend stocks with yields higher than 8% as of July 8. Then, we narrowed down the choices by finding stocks with an upside potential according to analyst predictions. Finally, we selected companies with the most hedge fund investors holding stakes in them, using Insider Monkey’s Q1 2024 database. The stocks are ranked in ascending order of hedge fund investors having stakes in them. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A real estate executive standing in front of a row of newly constructed townhomes.
Rithm Capital Corp. (NYSE:RITM)
Number of Hedge Fund Holders: 20
Dividend Yield as of July 8: 9.49%
Rithm Capital Corp. (NYSE:RITM) ranks sixth on our list of the best dividend stocks with over 8% yield. The American asset management company focuses on real estate and financial services. The company was founded in 2013 and now has grown into one of the largest non-bank mortgage originators in the US. In the beginning, it concentrated on investments in mortgage servicing rights (MSRs). Previously known as New Residential Investment Corp., the company underwent a rebranding in June 2022 and now operates under the name Rithm Capital. Since July 2022, the stock has surged by nearly 11%.
Throughout its history, Rithm Capital Corp. (NYSE:RITM) has significantly leveraged its relationships within the industry. In 2023, the company acquired $1.4 billion worth of prime unsecured consumer loans from the Goldman Sachs Group. This acquisition was particularly advantageous for the company, capitalizing on its established expertise and experience in consumer finance. Later that year, the company acquired Sculptor Capital Management in a transaction valued at nearly $720 million. This strategic move brought in $32 billion in the company’s assets under management (AUM), with a total standing at $35 billion as of 2023.
While Rithm Capital Corp. (NYSE:RITM) is currently expanding and competing with major players, we believe it has substantial growth potential in the years ahead, given its strategic direction. The company has revamped its business model and is actively forming alliances within the industry to leverage opportunities. In addition, it continues to benefit from its servicing revenues, further enhancing its competitive position and outlook for future growth. Its net servicing revenue for the first quarter of 2024 jumped to nearly $555 million, from $15.8 million in the same period last year.
Rithm Capital Corp. (NYSE:RITM), one of the best dividend stocks on our list, announced a quarterly dividend of $0.25 per share on June 18, which was consistent with its previous dividend. In the most recent quarter, the company returned approximately $121 million to shareholders through dividends. As of July 8, the stock has a dividend yield of 9.49%.
Insider Monkey’s database of Q1 2024 indicated that 20 hedge funds held stakes in Rithm Capital Corp. (NYSE:RITM), up from 19 in the preceding quarter. These stakes have a total value of more than $212 million. With over 4.7 million shares, Long Pond Capital was the company’s leading stakeholder in Q1.
Overall RITM ranks 6th on our list of the best high yield dividend stocks with upside potential. You can visit 10 Very High Yield Dividend Stocks With Upside Potential to see the other high yield dividend stocks that are on hedge funds’ radar. While we acknowledge the potential of RITM as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than RITM but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.
