9.2% Dividend Yield: Good But Not Good Enough From Rithm Capital

Rithm Capital preferreds offer similar credit risk, but RITM-C is least attractive on a relative valuation basis. RITM-C trades at 101.3% of the buy target, with a stripped yield of 9.16%, lagging RITM-B and RITM-A. RITM-B and RITM-A offer materially higher yields for similar risk, making them more compelling choices at current prices. RITM-C remains a fundamentally sound preferred but is a hold due to its lower yield and thinner spread vs. peers.

During the last few months, we've written articles on three of Rithm Capital's (RITM) preferred shares on Seeking Alpha. We discussed: RITM-D (RITM.PR.D) as one of our favorite fixed-to-reset preferred shares. RITM-B (RITM.PR.B) when it dipped into our buy range with an attractive stripped yield. RITM-A (RITM.PR.A) because of its high floating spread and stripped yield.

That Raises a Question Why aren’t we talking about RITM-C (RITM.PR.C)? The answer isn't that RITM-C is a terrible preferred share. It simply has the habit of competing against three other preferred shares that usually offer investors a better deal. Those other three preferred shares all come from the same company. Today, RITM-C is a good example of why relative valuation plays a major role in the preferred share space.

Our current rating on RITM-C is a hold. We don't have any major concerns when it comes to Rithm Capital's preferred shares. I think they're a reasonable investment for many investors, if the price is right. If you’re not looking for securities that offer a big dividend yield, they're probably not a great fit for you. If you're looking for that kind of income, then I think any of these shares could work if the valuation is right. Consequently, we’re going to focus more on relative values than on evaluating the share by itself. If you’re looking for analysis of the underlying company, Seeking Alpha has many articles on RITM. Scott Kennedy also provides his research on RITM on The REIT Forum. The question is which Rithm preferred share has the best value. That's an important distinction. Too many investors become attached to a specific ticker or a specific yield threshold. We are attached to which preferred share offers the best relative value. The ticker doesn't care if you like it.

As of writing this article, RITM-C trades at roughly 101.3% of our buy target, making it the most expensive preferred share from RITM in our view. That isn't enough by itself to make RITM-C a poor choice. However, once you consider the other three preferred shares, RITM-C is a tiny bit behind.

One of the nice things about covering preferred shares from the same company is that you don’t need to compare the issuers to each other. Credit quality is the same. Capital structure is the same. The management team is the same. With all those being the same, investors can focus more on pricing and the structure of the preferred share.

As of writing this article, RITM-C has: A stripped yield of about 9.16% A floating yield on price of about 9.27% Are those good yields? Yes. However, there starts to be a valuation problem when RITM-B currently offers a stripped yield around 9.65% and RITM-A has a stripped yield around 9.8%. For RITM-A, the negative yield to call becomes a problem, but it’s still close to our buy range. That's roughly 50 basis points of additional income for the same underlying credit risk. RITM-A has a higher stripped yield at around 9.8%, but the negative yield to call is a problem. However, it...