Ramco-Gershenson Properties Trust (RPT), Annaly Capital (NLY): I’m Selling These 2 High-Yield Stocks

It’s time to sell a pair of stocks from my Special Situations portfolio. Those stocks are the preferred Series D stock of Ramco-Gershenson Properties Trust (NYSE:RPT) and Annaly Capital Management, Inc. (NYSE:NLY).

Annaly Capital (NLY)

Ramco-Gershenson Properties Trust

It’s hard to believe it was just four months ago when the portfolio purchased the convertible preferreds of Ramco-Gershenson Properties Trust (NYSE:RPT). The intent behind the purchase was to have a cash-generating security with some potential for upside and limited downside. And buying the convertibles with their higher yield offered that opportunity. They had a higher yield than the common while still offering upside via their convertible feature, allowing the holder to exchange the preferred for common stock.

In total, the purchase provided more than a 20% return in about four months. That’s about $1.81 in dividends plus capital appreciation from $51.93 to $60.75 (as I write).

While the dividend still looks nice, at nearly 6% (compared to the common stock’s 4.2% yield), I think the common stock — the key driver of the convertible preferreds — is reasonably valued now. In its latest annual guidance, the company predicted a midpoint of $1.07 per share in funds from operations (FFO), compared to $1.04 for 2012. That’s modest growth for a stock trading at 15 times forward FFO.

But could there be more FFO growth on the way? The company announced a new deal recently to buy the remaining 70% in a joint venture of properties that it didn’t already own. While the properties look to be higher quality and at a decent cap rate (7.4%), the financing and the constraints of Ramco-Gershenson Properties Trust (NYSE:RPT)’s deleveraging mean that not much of the immediate value accrues to the common stock. For example, I estimate that revenue will go up 16%, while the number of common shares increases 14%. Admittedly, there’s operating leverage in this type of business, but I’m not sure how much further FFO could grow.

Another source of increasing stock price would be dividend growth, but for now, I do not expect above-normal growth as the company continues working to deleverage. The recent payout increased just 3%.

So after a nice run, I’m saying goodbye to the Series D preferreds of Ramco-Gershenson.

Annaly Capital
In addition, my Special Situations portfolio is selling Annaly Capital Management, Inc. (NYSE:NLY). I purchased two different lots back in 2011, at prices of $18.11 and $17.75, largely as a hedge against a declining or exploding economy and Congressional disability. Including dividends, those positions came out with a 7% gain and a 6% gain.

While the company continues to expand into new lines to help boost its interest rate spread, it’s also adding new risk. Formerly, Annaly was exclusively focused on agency-backed securities, meaning it had no credit risk. Now, its future plans include assuming new risks in exchange for greater reward.

Annaly Capital Management, Inc. (NYSE:NLY)’s dividend has declined markedly in recent quarters, and book value dropped quickly in the most recent quarter, down 4.5%. With book value now at $15.85 per share and the stock hovering just below that, at $15.62, I think it’s time to sell.

The article I’m Selling These 2 High-Yield Stocks originally appeared on Fool.com.

Jim Royal has no position in any stocks mentioned. The Motley Fool owns shares of Annaly Capital Management (NYSE:NLY).

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