Piper Sandler Eyes 2 Dividend Stocks Offering Yields as High as 13%

Amid recent market unease stemming from regional banking sector troubles, Piper Sandler analyst Crispin Love highlights two dividend-paying REITs, Annaly Capital (NLY) and Rithm Capital (RITM), as defensive investment opportunities. Annaly Capital, a mortgage REIT with a 13.6% dividend yield, reported Q2 adjusted EPS of $0.73, covering its $0.70 dividend, and is rated Overweight with a potential total return exceeding 20%. Rithm Capital, a diversified real estate and financial services firm, posted Q2 earnings available for distribution of $0.54, easily covering its $0.25 dividend for a 9.3% yield, and is also rated Overweight with a projected total return in the high 40%s, driven by its diversified model and attractive valuation.

Analysis

Amid recent market unease stemming from regional banking sector troubles, investors are increasingly seeking defensive plays, with dividend stocks emerging as a favored option due to their stability and consistent payouts. Piper Sandler analyst Crispin Love has identified two REITs, Annaly Capital (NLY) and Rithm Capital (RITM), as attractive opportunities, both of which are viewed positively by Wall Street analysts. The general market sentiment is moderately positive, with an optimistic tone, despite the initial banking sector concerns.

Annaly Capital, a leading mortgage REIT, reported Q2 adjusted EPS of $0.73, exceeding forecasts and comfortably covering its $0.70 dividend. The company's portfolio is heavily weighted towards highly liquid Agency MBS, comprising 89% of total assets, and it offers a substantial 13.6% dividend yield, significantly above the sector average of 3.3%. Piper Sandler maintains an Overweight rating on NLY, citing its diversified model and attractive valuation, projecting a total return exceeding 20% when factoring in the dividend and a $22.50 price target.

Rithm Capital, a diversified real estate and financial services company, also presents a compelling case, having evolved beyond a pure mortgage-focused REIT. Its Q2 earnings available for distribution (EAD) of $0.54 per share easily covered its $0.25 quarterly dividend, which translates to a 9.3% yield. Analyst Love expects Rithm to generate an EPS run rate of $0.50+ through 2025-2026, supporting his Overweight rating and a $15 price target, which suggests a total return in the high 40%s, driven by its diversified platform and potential for scaling its asset management business.

Key Decisions for Investors

• Consider Annaly Capital (NLY) and Rithm Capital (RITM) for income-focused portfolios, given their high dividend yields and positive analyst outlooks as defensive plays in a volatile market.
• Evaluate the sustainability of these REITs' dividend payouts and their sensitivity to interest rate changes and potential GSE reform, which are key factors highlighted by analysts.
• Monitor the broader regional banking sector and macroeconomic environment for any shifts that could impact mortgage-related assets and the overall performance of these companies.