Vertigo3d
When Sachem Capital (NYSE: SACH) increased its quarterly dividend to $0.14 per share, a 16.7% increase from the previous dividend of $0.12, its long-term investors reacted with surprise and jubilation. The previous payout was seen by some as somewhat risky due to the uncertain macro environment and worries about whether it has been covered. Therefore, the decision to increase his quarterly payout appears likely to lessen these concerns while reflecting the long-term management objective of providing attractive risk-adjusted returns to shareholders through dividends.
Based in Connecticut, Sachem is a real estate finance company specializing in originating, servicing and managing a portfolio of prime mortgage loans. The non-bank lender typically focuses on short-term, 12-36 month secured loans to property investors looking to finance residential or commercial development projects. Although it has a presence in 15 states, the company primarily focuses on Connecticut, Massachusetts and New York.
The property development market is extremely capital intensive, with developers relying heavily on borrowed capital to acquire, develop and maintain properties. Sachem focused on meeting this demand through relatively small loans. The company has an average loan size that is currently under $500,000, but has increased significantly in recent quarters.
The company’s common shares are currently trading at just over $5, which puts Sachem’s total market capitalization at $183.5 million, down from around $220 million at its peak when the shares traded at 6. .40 dollars. The decline was supported by general unease in equity markets caused by rising inflation, interest rates and recessionary pressures. This of course presents systematic risks for Sachem as it could slow demand for their loans, lead to increased defaults on their current loan portfolio or reduce the value of properties used as collateral by its clients.
Sachem navigates the short-term loan market for strong results
Sachem last reported earnings for its second quarter of fiscal 2022, which saw revenue of $12.5 million. This is an 87% growth over the prior year quarter and a beat of $870,000 on consensus estimates. Management said the increase was primarily due to an expansion of lending operations to new geographies and larger loan sizes. Interest income of $10.4 million accounted for the bulk of revenue and was up approximately $5.8 million or 122.8% from a year ago. Set-up fees at $2 million also increased, up 145% from $832,000 in the prior year quarter.
The company’s earnings per share in the quarter were $0.16 thanks to non-GAAP adjusted earnings of $5.8 million. As Sachem is structured as a REIT, it is required to distribute a minimum of 90% of taxable income each year to its shareholders. This emphasizes increasing the quarterly dividend payout and yield by 11% as it is covered by adjusted EPS. Accordingly, the strong growth momentum in Sachem’s lending operations should enable the company to continue to deliver strong results over the coming quarters and possibly further incremental dividend payout increases. It depends on the broader macroeconomic backdrop not deteriorating further.
The fact that Sachem’s managed to grow total assets by 25.7% year-over-year to $525.4 million is praise for its management’s ability to manage disruptions and the weakening of the economy that we have seen since the beginning of the year. This growth is mainly attributable to a $130 million expansion of their loan portfolio. However, total liabilities also increased to $320.4 million, a 34.7% increase over prior year liabilities with cash and cash equivalents of $29 million at year-end. trimester.
I buy because of the performance
Sachem Capital offers an attractive return in an uncertain macroeconomic environment. I buy because I need income. Inflation continues to rise, hitting household budgets hard as we all watch the prospect of double-digit inflation figures on the back of Russia’s unprovoked war on Ukraine. That could lead to further Fed funds rate hikes and reduce demand for short-term loans that have supported Sachem’s net income growth since its IPO.
The need to create a more reliable stream of income in the face of what appears to be months of heightened financial hardship for millions of people is one of the main reasons I expanded my position at Sachem. While this also presents a risk of capital destruction and potential reduction in dividends, the alternative of seeing your lifestyle eroded by inflation is too serious to ignore. I view Sachem as a buy based on its financials which have supported the recent dividend increase. Indeed, the macro environment poses risks to the very well-managed company, but overall this is a non-Sachem systematic issue that must be assessed when investing in all public companies.
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