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Why RAIT Financial Trust Looks Like a Comfy Investment

April 23 , 2010

RAIT Financial Trust (RAS) is in REIT sector, one of the hottest sectors recently. The company reported a $0.24 earnings per share for Q4, 2009, the first profitable quarter after few quarters of big loses since Q4 2008. We bought it at $1.03 two months ago and its stock price is about to touch $3.00 on Friday, a near +200% return in just two months of our investment.

In the first article of "Value Investing for Your Retirement" series published a year ago, I said:

"Do you believe it if I tell you that there exists a company in which $100,000 investment will give you a stable $100,000 annual dividend in just few years?"

In two later articles, I presented two such companies - Mechel OAO (MTL) - We bought it at $3.12 and is now traded at $27.46 and KKR Financial Holdings LLC (KFN) - Our buy price was at $1.64 and is now traded at $8.98 .

Now RAS may provide another such investment opportunity.

Below is the company's dividend distribution history after it went public:

1998 - $1.77
1999 - $2.04
2000 - $2.04
2001 - $2.12
2002 - $2.39
2003 - $2.46
2004 - $2.40
2005 - $2.43
2006 - $2.70
2007 - $2.56
2008 - $1.27 (it stopped its dividend since Q4, 2008 because of recession ) .

More surprisingly, the stock was at $1.00 level but its book value was $10.34 and just turned profitable two months ago. The company will report Q1, 2010 result on Thursday April 29. The estimates are a loss of $0.11 per share but our calculation is a profit of around $0.30 per share.

If the company resumes its dividend by the end of this year and gradually increases its distribution level to the half of pre-recession yeas' distribution level (around $1.20 per share) in 2014, $100,000 investment at $1.03 per share will give you more than $100,000 yearly dividend.

That is, a $100,000 investment in 2010 may turn into $120,000 annual dividend in 5 years. In the meantime, the stock will be traded much higher than its current level, $10.00 is quite conservative. Therefore your asset will become at least one million dollars. One million or more net asset + $120k annual dividend should be enough for peaceful retirement..

Want to know other hot sectors and hot stocks other than Mortgage insurers? Only we can tell you.


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