Novastar Financial (NFI): Great Company, Great Stock - and an 18% Dividend!

While seeking to increase the diversification of my 401(k) with a stock in the financial area (yeah, I'm weak there, and have considered C, MTU, ET, etc.), my research led me to what I consider one of the undervalued gems in the stock market: Novastar Financial Inc. (NFI). A Website for new investors, nfi-info.net,  provides a lot of information about the company. Its an REIT (Real Estate Investment Trust) that pays out is taxable income as a dividend to its shareholders. They focus on non-prime mortgages. It has a reputation for trustworthy, reliable management, and has a business model that will succeed, in my opinion, whether interest rates go up or down, and can be profitable even if the economy slows. That's my take, anyway. Do your own due diligence, but don't overlook the opportunity afforded by NFI. I think now is the time to buy: the stock dropped a lot last year, even as earnings were great, largely because I think the market did not appreciate the robustness of its business model and did not realize that the high dividends are going to last.

I estimated (uh, guessed - based on psychology, Fed trends, etc.) that the stock hit bottom at the end of 2005 and bought in on Jan. 4 at 28.9. I bought more on Jan. 9 at 29.8. Today we're at 30.55. Will watch and expect to buy more if it shows strength. I think we'll continue up sharply come spring when I think other REITs will be moving down and lowering dividends while NFI continues stuffing shareholder pockets with dividend cash. Tasty! Enjoy.

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