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CYS Investments, Inc.'S (CYS) 13.8% Yield Is A Smart Way To Participate In Housing Recovery

 October 31, 2012 02:39 PM


(By Rich Bieglmeier) With the stock market under assault from sellers, investors might consider stocks with high dividends and insider buying as potential candidates to ride out the storm. Last week, CYS Investments, Inc.'s (CYS) CEO, Kevin Grant purchased $556,808.80 of his company's stock.

In the past two years, all the CEO's activity has been exercising options and selling shares. In total, he sold 262,000 shares from September 2011 through September 2012. So, a change of heart should be seen as a big positive.

CYS is a specialty finance company that was created with the objective of achieving consistent risk-adjusted investment income. They seek to achieve this objective by investing on a leveraged basis in residential mortgage pass-through securities for which the principal and interest payments are guaranteed by the Federal National Mortgage Association, or Fannie Mae, the Federal Home Loan Mortgage Corporation, or Freddie Mac, or the Government National Mortgage Association, or Ginnie Mae, and collateralized by single-family residential mortgage loans.

[Related -12 Really Cheap Stocks With Extraordinary High Yields - Over 10%]

If there truly is a housing recovery emerging, then CYS, Mr. Grant and shareholders should benefit. In fact, the CEO will receive $75,726 in dividend interest based on its current yield of 13.6%.

However, since June 2011, CYS Investments steadily decreased its dividend payout. If you layer Mr. Grant's sales on the dividend cuts, it's hard to miss the overlap. It's just reading between the lines on our part, but, perhaps the dividend is about to be upped? Or at worst, the payout remains flat?

[Related -After Getting Pounded, mREITs Are Poised To Recover]

Or, maybe, the executive thought the recent price drop from its 52-week high of $15.03 to $13 was too much. The stock pivoted higher at $13 twice in October, following the mid-September swoon. The "unlucky" number was resistance on the way up, and with a double bounce during the correction, should provide firm support. If $13 doesn't hold, the iStock can see CYS falling to a hair under $12.

Or, maybe, Mr. Grant sees his company as a good value. The stock is trading near its five-year low on a price-to-book value basis. CYS has traded as low as 0.8693 times book value. As we type, it is valued at 87.6% of its book value of 14.48.  Meanwhile, return-on-equity of 29.08% remains nears the five-year high of 31.57%, and well above the average of 22.15%. ROE is a fairly reliable indicator of how efficiently management is running the REIT.

Overall, iStock sees CYS Investments, Inc.'s (CYS) as a high-yield opportunity to take part of the housing "recovery"; although, with limited capital gain potential. While it is just connecting the dots, the half a million-dollar insider purchase gives us confidence that the dividend payout should hold fairly steady.
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