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What the heck is New Century Financial Corp ? Why does it give juicy dividend yield of 15% ? Why does it have a P/E 6? April 3, 2006

Posted by deminvest in Dogs of the Dow, investment, My investing mistakes, NEW New Century Financial Corp, Single stocks, stock I own, stocks, stocks that pay high dividends.
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This is what I am going to try and find out… By reading on news.google.com I find out that:

New Century Financial Rose To Over A 7-Month High Trading Markets – 23 Mar 2006

And also that:New Century Financial CEO got $1.07M bonus for 2005 MarketWatch – 22 Mar 2006

It seems all right. Then reading around I find that the mortgage business is being beaten down. Is it? Then why are dividend yield forecasts so juicy? Why are earning so high that they result into a P/E ratio of 6?

Then I go on http://finance.yahoo.com/q/ks?s=NEW where I do find nore great news:

  • Qtrly Revenue Growth (yoy): 6.40% meaning in the last quarter Revenue grew 6.40% higher than the same quarter one year ago.
  • Qtrly Earnings Growth (yoy): 48.20% Earnings grew 48%.
  • And more great good news: Dividend for this year is 8.25 Dollars on each share that I can buy for 44$ today… and it will be paid in April! Making a dividend Yield of 17.90%… Next year’s forecast are for a dividend of 7 $ (yield 15.20%). Well I can accept that too!

Ok… Just a second… I changed my mind…. I will not buy 1000$ worth of NEW. I am getting 2000$ worth of NEW…

A minute….

DONE!

I bought 40 of them at $44,67 spending $1.786,80. Let the force be with me!

Well maybe someday I will tell you what was wrong with NEW, but right now I tell I feel like someone who made a big bargain!

Comments»

1. superg52 - April 5, 2006

I bought some NEW stocks in the 2005,
when the company confirmed the dividend for 2006,
and I really made a big bargain!

But you also made a good bargain:
the company is still undervalued about 50%

I think I will keep that shares until they’ll pay a good dividend
and maybe I’ll buy some more

Let the force be with us!

2. itemirus - April 6, 2006

I was about to buy some NEW shares last monday, but i thought that NRF (Northstar Realty Fund) is a much better REIT compared to NEW. She has more upside potential as a growth stock, and dividends on the rise as well.

JMHO

3. deminvest - April 6, 2006

Thank you for your advice. I have studied NRF (Northstar Realty Fund), but in my honest opinion, it does’t match NEW. For several reasons:

1) on http://finance.yahoo.com/q/ks?s=nrf you will find that NRF earnings are expected to go 25% down:

Trailing P/E (ttm, intraday): 8.01
Forward P/E (fye 31-Dec-07): 10.88

The fact that P/E is expected to increase 25%, means that earnings are expected to go down 25%

2) NEW is cheaper than NRF:
Trailing P/E NRF (ttm, intraday): 8.01 Trailing P/E NEW (ttm, intraday): 6.50

2) NEW offers much higher dividends and forecasteed dividends:

NEW
Trailing Annual Dividend Yield: 17.70%
Forward Annual Dividend Yield: 15.30%

NRF
Trailing Annual Dividend Yield: 7.30%
Forward Annual Dividend Yield: 10.10%

3) NRF has an horribly high Payout Ratio of 143%, meaning that they are paying more dividends than they have earnings. No company can substain that and they will have to lower dividends.

For all those reasons I will stick with NEW. Will you switch to NEW also. And if not, why do you prefer NRF?

4. mike - April 20, 2006

I bought New Century on 10/28/2006 for only $30.95 a share, it closed yesterday 4/19/2006 at $48.98. I’m going to hold on to it because the dividend is going to go up 5 cents a quarter for at least the rest of 2006.

5. deminvest - April 20, 2006

This stock continues to amaze me for how well it is performing and how cheap it is. I think I’ll only sell it if it triples its value.

6. deminvest - February 13, 2007

LOL after all this time I am reading about my last comment and find it really funny. NEW is now losing 60% of its value. The company is now posting losses…
I think that this answers now to my questions about why it was so cheap one year ago…


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