NexPoint Real Estate Finance (NREF)

The next dividend stock on our list is a real estate investment trust, a REIT; these companies are well-known as high-yield dividend champs, so it’s unusual to find them slipping under investors’ noses – but that’s what’s happened here, with NexPoint Real Estate Finance. The company, which focuses its investments on mortgage loans for single-family and multi-family rental properties, as well as taking direct ownership of storage facilities and commercial office space, hasn’t picked up a lot of attention. But perhaps that should change.

To start with, the company’s portfolio is 92.9% stabilized, and has an average of 6.2 years remaining on lease terms. The firm’s portfolio is worth $1.7 billion, and is composed of 83 investments – and as of October 26 this year, there were no loans in default or forbearance in the portfolio. NexPoint’s earnings available for distribution (EAD) came to 48 cents per diluted share in the recent 3Q22 report. And of particular interest here, the company had, as of September 30, $11.2 million in cash available for distribution (CAD). This came to 50 cents per diluted share, and fully covered the dividend.

That dividend was last declared in October, for a December 30 payout – at 50 cents per common share. This dividend annualizes to $2 exactly, and gives a robust yield of 11.2%. This yield is more than 5x higher than the average dividend found in the broader markets. NexPoint has raised its dividend payment three times in the last three years, and is careful to keep the payment in line with its distributable cash.

5-star analyst Stephen Laws, of Raymond James, likes what he sees in this company, and writes in his recent note, “With the investment portfolio focused largely on SFR and multifamily assets and NREF’s use of primarily like-kind financing, we expect CAD to continue covering the dividend… Given our portfolio return estimates and with shares trading at a discount to book value, we are reiterating our Strong Buy rating.”

Laws’ Strong Buy rating comes with a $21 price target for NREF shares. If this target is achieved, investors could realize potential price appreciation of ~18% over NREF’s current share price.

Overall, NREF has slipped under most analysts’ radar; the stock’s Moderate Buy consensus is based on just two recent ratings; Buy and Hold (i.e. Neutral).