Unlocking High Yield: Why Sachem Capital's Preferred Shares Steal the Show

In the vast ocean of income-generating investments, the quest for stable, high-yielding opportunities is perpetual. Many investors find themselves weighing the pros and cons of various real estate-backed options. Our journey often leads us to consider mortgage REITs (mREITs) like Granite Point Mortgage Trust (GPMT) and direct lenders such as Sachem Capital Corp (SACH).

While GPMT presents itself as a contender, offering exposure to commercial real estate debt, its volatility, particularly in its common stock and dividend reliability, gives pause.

The mREIT model, with its reliance on interest rate spreads and the inherent risks of a leveraged portfolio, can be a bumpy ride, especially when faced with economic uncertainties or rising interest rates. The memory of dividend cuts in the mREIT space is a stark reminder of these potential pitfalls.

This brings us to Sachem Capital Corp (SACH), a real estate finance company specializing in short-term, secured, first-lien mortgage loans.

What immediately captures attention is not just SACH's common stock, but its preferred shares, specifically SACH.PA. These preferreds offer a compelling proposition for income seekers, boasting an attractive yield that significantly outpaces many alternatives while offering a layer of safety not typically found in common equities.

SACH.PA stands out with its impressive dividend yield, currently hovering around 11%.

This isn't just a high number; it's a yield backed by SACH's robust business model. Sachem Capital lends primarily to experienced real estate investors for short-term projects like fix-and-flips, with loan terms typically ranging from 12 to 36 months. Crucially, these loans are collateralized by first-lien mortgages on residential and commercial properties, providing a strong asset-backed foundation.

The preferred shares occupy a crucial position in the capital structure.

They are senior to the common stock, meaning in the unlikely event of liquidation, preferred shareholders are paid before common shareholders. Furthermore, their dividends are fixed and cumulative, offering a predictable income stream that common stock dividends simply cannot match. This seniority and cumulative nature are significant comfort factors for investors prioritizing income stability over speculative growth.

Examining Sachem Capital's fundamentals, the company demonstrates consistent profitability and strong interest coverage, which is vital for preferred share dividend sustainability.

Their portfolio management, characterized by conservative loan-to-value ratios and diligent underwriting, further mitigates risk. The short-term nature of their loans also allows for quicker adaptation to changing market conditions compared to longer-term debt portfolios.

In contrast, GPMT, despite its potential, carries the structural risks inherent in an mREIT.

Its dividend has been less predictable, and its common shares are subject to greater market whims. For an investor whose primary goal is reliable, high income, the stability and preferential treatment of SACH.PA become overwhelmingly attractive.

Choosing SACH.PA is a deliberate decision to prioritize a secure, high-yield income stream over the higher risk, potentially higher reward (but also higher volatility) of common stocks, particularly in the mREIT sector.

It's a move for those who appreciate the 'sleep well at night' factor that comes with a well-covered, asset-backed preferred dividend. For investors seeking a robust 11% yield with a greater degree of safety than many alternatives, Sachem Capital's preferred shares truly shine as a top-tier income play.