Novastar Financial (NFI): High Yield, Growing Principal - An Outstanding Real Estate Investment Trust

Novastar Financial is a REIT (real estate investment trust) that pays out at least 90% of its taxable income as a divided. The dividend for 2006 will be at least $5.60 a share, and the stock is still below $40, giving it over a 15% yield. I bought some last December around $29 a share - it's up about 30% since then and has a long ways to go. I see a target price of around $50 by the end of the year - unless the Fed jacks up interest rates well beyond what the market is expecting. That could happen - but this company is conservative and prepared for that, so expect high yield even if the stock later flattens or dips with changing market conditions. Do your own due diligence, but it's a stock that is poorly understood by many market gurus, the subject of lots of skepticism, and a solid performer - exactly the kind of thing I look for as a 70% contrarian investor.

Dividends, dividends, dividends - that's what makes for real investing versus speculating, in some people's opinions. As a rule, I agree that it's best to find stocks that pay dividends - that means they are actually making money. And it's a good idea to have a few high dividend stocks in your portfolio like NFI, Peruvian Copper (PCU), SJT, and others.

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