Here's How Rithm Capital Can Afford Its 9.5% Dividend Yield

Core Viewpoint - Rithm Capital offers a high dividend yield of 9.5%, which is unusual for stocks, indicating potential investor concerns about the underlying business [1][2]. Group 1: Business Model and Operations - Rithm Capital is often classified as a mortgage REIT but operates differently from traditional mortgage REITs like AGNC Investment, focusing on a diversified business model [4]. - The company generates investment income from its mortgage-backed securities (MBS) portfolio, which is a smaller part of its overall operations, alongside a single-family rental business owning 4,266 units [5]. - In the first half of 2024, Rithm originated loans totaling $1.7 billion, contributing to its diverse revenue streams [6]. Group 2: Mortgage Servicing Rights - Rithm Capital holds full rights to service mortgages with an outstanding balance of $587 billion as of June [7]. - The mortgage servicing rights (MSR) portfolio accounts for approximately 35% of total revenue, but a potential refinancing wave could turn this segment into a liability [9]. Group 3: Diversification and Acquisitions - To mitigate reliance on the mortgage industry, Rithm acquired Sculptor in late 2023, which had $34 billion in assets under management, further diversifying its portfolio [10]. Group 4: Financial Performance - Rithm Capital's book value was $6.1 billion at the end of June, while its market cap was approximately $10.48 per share [11]. - The company earned $0.44 per share in the second quarter and $1.19 per share over the past 12 months, significantly exceeding its quarterly dividend obligation of $0.25 per share [12].