Founded in 2009 and based in Moorpark, California, PennyMac Mortgage Investment Trust (PMT) is a specialty finance company that invests primarily in residential mortgage loans and mortgage-related assets. Operating as a real estate investment trust (REIT), the company is not subject to federal corporate income taxes if it distributes at least 90% of its taxable income to shareholders.
PMT is a Dividend Challenger with a 5-year streak of dividend increases. It pays quarterly dividends in January, April, July and October. The current dividend is 59¢ per share, so starting yield on cost is an impressive 11.27%.
Since it was founded in 2009, PMT share price performance has been rather mediocre, increasing only 11% compared with 92% by the S&P 500. The recent price drop following its latest earnings announcement provides a great investment opportunity, in my view.
Analysis of PMT
My fair value estimate for PMT is $39.40, so I picked up shares at a discount of about 69%. The following table provides some key statistics for PMT, with highlighted values relating directly to my selection criteria.
dividend yield + (3-yr dividend growth rate)/2 = 11.27 + 43.6/2 = 33.07So, PMT easily meets the Chowder Dividend Rule. Additionally, PMT's debt to equity ratio is below 50% (17%). As an REIT, PMT's EPS payout ratio (86.45%) is expected to be on the high side:
PMT appears at the top of my dashboard of dividend candidates and tops the sector winners for May. It earns 6 stars: (*******)
Other ratings for PMT
PMT is the second REIT holding in DivGro and increases my exposure in the Financials sector to 7 stocks. Based on my analysis of dividend growth stocks by sector, with this buy, I've reached my target of 7 holdings in the Financials sector.
PMT is the largest non-bank lender in the U.S. With its recent price drop, PMT now offers a dividend yield above 11%. That is a remarkable yield!
The question is, of course, if the dividend is sustainable. My bet is that it is, although I realize that owning PMT carries more risk. I'm willing to take the risk for a dividend yield exceeding 11%.
120 shares of PMT adds $283.20 of expected dividend income, increasing DivGro's projected annual dividend income to $4,283.23.
PMT is the 30th holding in DivGro.