Home Loan Solutions Service (HLSS) is worth a look as a monthly dividend paying stock. The company has exceeded earnings estimates for 4 straight quarters. Home Loan is benefiting from the rebounding housing market as it focuses on servicing mortgages for fees. The company has increased its monthly dividend by 63% in the past year.
While Home Loan Solutions is not what I consider a value play trading at 1.5 times book value, the company has 80% plus operating margins and generates $1.9 million in income per employee. That is no typo, $1.9 million per employee. This is a very enticing business model.
The risk to sales growth is an increase in prepayment rates but these have been lower than expected. Also, the mortgage refi boom seems to be slowing so HLSS will likely purchase additional bundles of mortgages to service.
Home Loan Solutions received gross proceeds of $480.7 million from the December 24 follow-on offering of 25,300,000 ordinary shares at $19.00 per share. Proceeds from the offering and two new variable funding notes with a total commitment of $1.6 billion were used to acquire non-agency mortgage servicing assets from Ocwen representing mortgages with an unpaid principle balance of $34.6 billion.
Home Loan Solutions Service reported Q4 GAAP earnings of $0.44 per share, ex one-time items, versus the Capital IQ GAAP consensus of $0.39. Revenues were $61.07 million, versus the analyst estimate of $59.32 million.
“Reflecting on our first year of operations, I believe that we have delivered on our plan to provide our shareholders with earnings and dividends that are particularly attractive given the stability and low risk of our assets which the ABS markets are starting to reward,” said ChairmanWilliam Erbey. “I am pleased with the continued support of our equity and debt investors and look forward to further growth in 2013.”
“Our results in the fourth quarter exceeded our revised guidance as lower than expected prepayments reduced amortization expense,” said PresidentJohn Van Vlack. “We are pleased that the variations from our guidance in 2012 have all been positive. Additionally, strong executions in the ABS term note market are continuing to reduce our borrowing costs relative to our expectations.”
On February 7, 2013 the board of directors at Home Loan Servicing Solutions approved a dividend of 0.13 per share. The dividend is payable on April 10, 2013 to shareholders of record on March 29, 2013. HLSS has a current dividend yield of 6.78% following a 63% increase in its monthly dividend in the past year.
HLSS is trading at $23 with a fair value of $27, a 17% discount to fair value. First Call analysts’ consensus is for 2013 EPS of $1.75, a 12% increase from 2012. The First Call consensus is a buy recommendation with a rating of 1.8.
Based in George Town, Cayman Islands, Home Loan Servicing is a mortgage investment company. Founded in 2010, the company together with its subsidiaries is engaged in acquiring mortgage servicing assets, mainly subprime and Alt-A mortgage servicing rights and associated servicing advances.