Rithm Capital Preferred C Gets My Buy Rating Now

The analysis of Rithm Capital Corp. (RITM) preferred stocks recommends a "Buy" rating for RITM.PR.C, citing its positive Yield-to-Call (YTC) and lowest call risk, especially as RITM.PR.D is anticipated to be called first. In contrast, RITM.PR.A and RITM.PR.B trade above par, leading to negative YTC. Rithm Capital, an mREIT with a 5.5x common equity coverage ratio and profitability since 2021, demonstrates strong financial health supporting its preferred dividends, despite minimal impact from recent Fed rate cut discussions on its floating-rate issues.

Analysis

Rithm Capital Corp. (RITM), an mREIT, demonstrates solid financial footing to support its preferred stock obligations, evidenced by consistent profitability since 2021 and a respectable common equity coverage ratio of 5.5x for its preferred issues. An analysis of its four outstanding preferred series reveals distinct risk-reward profiles. The Series A (RITM.PR.A) and Series B (RITM.PR.B) issues currently trade above their par value, resulting in a negative Yield-to-Call (YTC) and creating a risk of capital loss upon redemption; Series A has already been partially called, underscoring this risk. In contrast, the Series D (RITM.PR.D) is unique in offering remaining call protection, but for only 15 months, a feature that comes at the cost of a 2.7% to 3.34% lower yield compared to other series. Its generous floating-rate formula makes it the most probable candidate to be called once eligible in late 2026. The Series C (RITM.PR.C) is identified as the most attractive option, offering a positive YTC and the lowest perceived call risk, justifying its comparatively lower yield against the A and B series. The potential for a Federal Reserve rate cut has had a minimal effect on these securities, as a decline in rates would negatively impact the coupon payments for these floating-rate issues.

Key Decisions for Investors

• Investors seeking a balance of current income and capital preservation should consider the Rithm Capital Series C preferred (RITM.PR.C), as it offers a positive yield-to-call and is assessed to have the lowest redemption risk.
• Caution is advised for the Series A (RITM.PR.A) and Series B (RITM.PR.B) preferreds, as their prices above par create a negative yield-to-call, posing a significant risk of capital loss if the company exercises its call option.
• Investors prioritizing short-term call protection could hold the Series D (RITM.PR.D) for its remaining 15-month protection period, but must weigh this against its substantially lower yield and the high probability of it being called when eligible.
• The selection among RITM's preferred issues requires a clear decision on an investor's tolerance for call risk versus the desire for higher current yield, with each series presenting a different position on this spectrum.