No. of Recommendations: 7
I realize that the pure financials are hard to analyze as their investing activities...usually financial instruments of some kind or another....are typically where their positve cash flow comes from to pay dividends, rather than from operations, which can and usually is negative, as the interest expenses, unless its capitalized interest, must be an operational expense. For NRZ the interest expense over the TTM was ($MM)$543.3, while gross revenue was $1,608.1, so it is very high and probably explains why their operational cash flow over the past 10Q was -$584. So what I'd expect to see is a positive CFFI over this period from the positive net sales of investment assets as they appreciate in value. However, I don't. The 10Q total CFFI is -$7,207. Huh? So where is all the cash coming from to pay dividends?

Well, the net CF from Financing Activities, or CFFA, over the past 10Q is $9,312, so NRZ is borrowing and issuing stock at very high levels? That doesn't sound good. If I add back the dividends (that are subtracted out as a financing activity), the net financing activity over the past 10Q was $7,923. At first glance then, this looks like NRZ is simply issuing debt and stock to generate the CF needed to pay part of its operational overhead, to make investments that aren't making any money and using the rest of borrowed $$ to pay a faux least this is how it first looks until....

If I break the CFFA down into debt and equity, net debt over past 10Q (Debt issue - Debt paid) is -$1,821 (debt paid down), while the net of equity issue - redemption is $1,605 ($$ raised through the sale of stock), the net of these is -$217. Hmmmmm.

So clearly NRZ is making its money through its financing activities. How financing generates such positive cash flows, I don't know....its as though they are lending using zero coupon bonds....although I'm sure that's not what they're doing.

A quick look at their 2017 1099-DIV shows about 25% is ROC, the rest ordinary dividends and some capital gain, so by IRS accounting, they are indeed generating income.

Is the dividend sustainable? I have no idea. NRZ reminds me why I don't normally invest in pure financials....they're just too difficult to try to least for me.

Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.