Following multiple recent bank collapses, some on Wall Street estimated the Fed would step back from its by-now customary rate hikes when it convened to discuss its monetary policy last week. That did not happen, however, and Fed chair Jerome Powell announced another 0.25 percentage point rate increase.
One prominent investor thinks that was unnecessary and counterproductive.
“Obviously he (Fed Chair Jerome Powell) didn’t need to do what he did,” billionaire Barry Sternlicht said, likening the act to “using a steamroller to get the price of milk down two cents, to kill a small fly.”
With regional banks already under severe pressure, Sternlicht, the co-founder and CEO of Starwood Capital, a hedge fund that oversees over $100 billion, believes the latest rate hike could potentially cause more damage to banks.
While Sternlicht is worried about the latest increase’s impact on the economy, going by one of his picks, he appears well-prepared to withstand any more rate hikes.
Sternlicht is invested heavily in MFA Financial (MFA), a dividend stock yielding a monster 15%.
MFA is structured as a REIT, a class of company’s long known for their high-yielding dividends. MFA’s portfolio is composed mainly of residential whole loans, residential and commercial real estate securities, and MSR-related assets.
As of the end of last year, MFA’s investment portfolio totaled $8 billion, although that declined from $8.3 billion at the end of 4Q21. Elsewhere in Q4, net interest income dropped by 20.7% from $70.15 million in the same period a year ago to $55.65 million. That said, at $0.48, adj. EP increased meaningfully from the $0.08 generated in 4Q21, and came in well ahead of the $0.30 forecast.
Of course, the most appealing aspect here is that sky-high yield. The quarterly dividend payout currently stands at $0.35, generating a yield of 15.3%.
That is no doubt attractive to Sternlicht, which has allocated 68% of his portfolio to his MFA holdings; he currently owns 10,638,539 shares worth $97.13 million.
Sternlicht is not the only one showing confidence in this name. Stephen Laws, an analyst at Raymond James, holds a positive outlook for MFA. His optimism is based on “selective new investments, conservative leverage, strong portfolio returns, and shares trading at ~80% of economic book value.”
“Given our outlook for attractive portfolio returns, an increased focus on business purpose loans, and the current valuation relative to our target, we believe the risk-reward is compelling,” the 5-star analyst further added.
As such, Laws rates MFA shares an Outperform (i.e. Buy) along with a $12.5 price target. This suggests the shares will climb 37% higher over the coming months. (To watch Laws’ track record, click here)
The Street’s average target is a little under Laws’ objective; at $12.33, the figure makes room for one-year returns of 35%. Rating wise, based on 2 Buys and 1 Hold, the analyst consensus rates the stock a Moderate Buy. (See MFA stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
