Up to date on September twenty sixth, 2025 by Bob Ciura
Actual property funding trusts generally have excessive dividend yields in extra of 10%. Ellington Credit score Firm (EARN) is one such instance. The inventory has an enormous dividend yield of 16.9% in the present day.
Excessive-yielding shares can generally be a warning signal that vital challenges are impeding the enterprise. For Ellington, because the share worth drops as a consequence of its circumstances, the dividend yield will increase.
Ellington is probably not a widely known inventory, however in October 2021, the company selected to change its dividend cost schedule from quarterly to month-to-month.
Meaning EARN is on the listing of month-to-month dividend shares.
We’ve compiled a listing of 80+ month-to-month dividend shares, together with necessary monetary metrics like dividend yields and payout ratios, which you’ll be able to view by clicking on the hyperlink beneath:
This text will analyze the funding prospects of Ellington Credit score Firm intimately.
Enterprise Overview
Ellington Credit score Firm is a closed-end fund centered on company CLOs, primarily mezzanine debt and fairness tranches. The company trades on the NYSE beneath the ticker image EARN.
EARN is headquartered in Previous Greenwich, Connecticut and is a small-cap firm with a market capitalization of ~$214 million. Ellington Credit score Firm is externally managed by an affiliate of Ellington Administration Group, LLC.
In April 2024, Ellington Residential Mortgage REIT modified its identify to Ellington Credit score Firm, and introduced its intention to rework right into a collateralized mortgage obligations (“CLOs”)-focused firm, transferring away from its deal with MBS. On January 17, 2025, shareholders voted and accredited of the conversion.
On April 1st, 2025, Ellington Credit score accomplished its conversion right into a CLO-focused closed-end fund.
On August nineteenth, 2025, Ellington Credit score reported its first fiscal quarter outcomes for the interval ending June 30, 2025. The corporate generated web earnings of $10.2 million, or $0.27 per share. Ellington achieved adjusted web funding earnings of $6.6 million within the quarter, or $0.18 per share.
At quarter finish, Ellington had $36.6 million in money and money equivalents.
Development Prospects
Ellington has seen its adjusted distributable earnings (known as core earnings previous to Q2 2022) per share shrink relatively than develop for probably the most half. Nevertheless, since 2019, the annual development charge has been 5.3%.
In its first few years, the corporate held its share depend constant, however following 2016, the variety of shares excellent has grown, which might be one other barrier to rising earnings on a per share foundation.
In April 2024, Ellington Credit score started the refocusing and rotation of its portfolio into CLOs. In the newest quarter, the corporate grew its CLO portfolio by 27% sequentially to $317 million. Moreover, its capital allocation to CLOs rose to 87%.
Given the refocusing of Ellington’s marketing strategy, together with its poor observe document of earnings development, we count on EPS development of 6% per yr over the following 5 years.
Aggressive Benefit & Recession Efficiency
Ellington claims that its portfolio managers are among the many most skilled within the MBS sector and its analytics have been developed over the corporate’s 30-year historical past.
The corporate possesses superior proprietary fashions for prepayments and credit score evaluation. Additionally, roughly 20% of the corporate’s workers are centered on analysis and data expertise.
Whereas the corporate’s particulars weren’t public within the 2008 actual property crash, a recession of that magnitude would most undoubtedly have an effect on EARN.
Its deal with government-sponsored MBS present some security, however a chronic recession sooner or later would doubtless have an effect on EARN’s backside line, and lead to additional dividend reductions.
Dividend Evaluation
The dividend has been reduce practically each single yr in its historical past with a rise in 2021, adopted by the dividend schedule being modified to month-to-month over quarterly, which some shareholders might admire.
And in Might 2022, the dividend was reduce once more, by 20%.
In 5 of the final ten years, the corporate’s payout ratio was close to or above 100%. At the moment, even after one other dividend reduce, the dividend seems to be beneath heavy strain.
Nonetheless, at a degree of $0.96 per share, EARN inventory yields practically 17%. Due to this fact, EARN inventory remains to be enticing for earnings buyers as a excessive dividend inventory.
However EARN’s dividend is much from reliable, given the company has had a path of cuts up to now. The dividend payout ratio is anticipated at 105% for 2025.
Any time an organization’s dividend payout ratio exceeds 100%, it’s a purple flag because it means the corporate is payout out greater than it brings in by underlying earnings.
Because of this, the dividend seems to be unsustainable on the present earnings degree.
Closing Ideas
Ellington Credit score has a poor historic document, each in core earnings per share and within the dividend. In actual fact, EARN slashed the dividend for six years in a row main as much as 2021 after which once more in 2022.
Regardless of these fixed cuts, the yield stays very excessive, because the share worth has additionally cratered over the long run. Outcomes are unstable, and thus, fairly dangerous.
Ellington Credit score receives a promote score as a consequence of its abysmal dividend historical past. Moreover, its dividend remains to be not on strong footing, leaving it open to even additional potential dividend cuts.
Don’t miss the assets beneath for extra month-to-month dividend inventory investing analysis.
And see the assets beneath for extra compelling funding concepts for dividend development shares and/or high-yield funding securities.
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