With the historically low interest rates of the past few years, REITs have offered tremendous income opportunities for investors. But lately, certain REITs have seen a slowdown in growth, turning some investors in other directions for higher dividend yields. In this article, I will discuss why CYS Investments Inc (NYSE:CYS) – even with its recent drop in net income – can still provide income and growth opportunities.
Overall, CYS performed well throughout 2012, even though the company’s recent declaration of both fourth quarter and fiscal 2012 earnings do not paint a pretty picture. In fact, for the fourth quarter 2012, CYS reported a net loss of more than $41 million, equating to $0.24 per share. This is a vast difference from the firm’s third quarter 2012 net income that ended up in excess of $240 million and $1.46 per share respectively.
In the area of net investment income, CYS reported just over $58 million for the fourth quarter 2012, but a net loss from investments of $96 million – both figures also off significantly from the company’s third quarter 2012 results. Given the fourth quarter 2012 results, the share price of CYS has lost some ground based on investor worries about the company’s net asset value.
CYS also announced that its Board of Directors would be repurchasing up to $250 million worth of common stock. As of early February 2013, analysts had lowered CYS’s target share price from $14 to $12, noting that the company’s core spread income of $0.21 plus drop income of $0.18 per share fell short of the $0.40 core dividend in the fourth quarter of 2012. This $0.40 was lower than the $0.45 estimate.
It was also noted that CYS’ book value ended 2012 at just over $13, which was also lower than the original target of $14.46 on a linked quarter basis. This led some to believe that the CYS dividend was under pressure.
Yet, although CYS’s share price has suffered due in large part to these figures, the firm is still paying investors a nice quarterly dividend of $0.40 per share, equaling a dividend yield of 13%. In addition, CYS announced in mid-December 2012 that it would also pay shareholders a special dividend of $0.52 per share.
This special dividend was paid out in order to distribute the remaining REIT taxable income that was earned in 2012. The special dividend was paid on December 28, 2012 (to stockholders of record on December 21, 2012). At the same time, CYS also declared a series A preferred stock cash dividend of $0.484375 per share of series A preferred stock for the quarterly period that began on October 15, 2012 and ended on January 14, 2013. With a P/E ratio of over 9 and earnings of 1.63, I still feel that investors should not count CYS out in terms of income or growth in either the short or long term.