





MFA Financial Stock: Why I'm Flipping Back To The 10% Yielding Series C Preferred Shares


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MFA Financial: Why the 10‑Percent Series C Preferred Shares Are Gaining Traction
MFA Financial (NASDAQ: MFA) is one of the few diversified consumer‑finance platforms that has managed to stay relevant in a market that’s been dominated by the big fintech names. In a recent Seeking Alpha piece, the author takes a deep dive into why the stock’s latest “flip” to the 10‑percent‑yielding Series C preferred shares could be a turning point for investors looking for higher yields and a lower-risk exposure than the company’s common equity. Below is a concise, but comprehensive, summary of the article’s key points.
1. Background: The MFA Financial Model
MFA Financial is a hybrid financial services company that combines traditional banking, consumer lending, and mortgage brokerage into a single platform. The company operates through three main divisions:
- Consumer Finance – Personal loans and credit lines.
- Mortgage Services – Mortgage origination, servicing, and referral.
- Commercial Lending – Small‑business loans and lines of credit.
Because of its diversified revenue base, MFA has historically delivered solid earnings and cash flow, even in turbulent economic conditions. Its core strengths lie in strong underwriting standards, a well‑developed fee‑based revenue stream from mortgage servicing, and a growing loan origination pipeline.
2. The Preferred‑Share Conundrum
In 2021, MFA issued a Series B preferred stock that offered a 9‑percent annual dividend to investors. That share was highly liquid and attracted a large number of institutional buyers. In early 2023, MFA introduced a Series C preferred share that offers a 10‑percent dividend rate, with a higher conversion price and a different priority structure.
The Seeking Alpha article explains that, while the Series C share carries a higher yield, it also has a slightly higher risk profile:
- Conversion rights: Series C shareholders can convert to common stock at a price that’s a little higher than the Series B conversion price. This limits upside potential in a rally but also locks in a superior dividend.
- Priority: The Series C shares receive priority over the Series B shares in dividend distribution, making them more attractive to yield seekers.
The author argues that the new 10‑percent rate is particularly compelling given that most high‑yield stocks in the broader market have been trading below 8%.
3. Why the Flip Is Happening Now
The article details several reasons why the company’s management and its investor base are now favoring the Series C shares:
- Yield Environment – In an era of rising rates and a flattening yield curve, a 10‑percent dividend looks like a “buy” to income investors.
- Capital Structure Optimization – The company’s capital structure has been stretched by prior issuances of Series B shares. Adding the Series C preferred shares helps keep the debt‑to‑equity ratio within a healthy range while still delivering cash to investors.
- Improved Cash Flow Forecasts – MFA’s recent earnings calls indicated a higher-than‑expected loan origination growth. The management believes that the cash generated will comfortably cover the higher dividend payout on Series C.
- Regulatory and Credit Ratings – The company’s credit rating remains investment grade, and the additional preferred stock is not expected to cause a downgrade. That is reassuring for conservative investors.
The article quotes the CFO, who said in an earnings call: “We are confident that our cash‑flow projections allow us to comfortably meet our preferred dividend obligations, and we believe that the 10‑percent Series C share will attract investors who are looking for a combination of yield and stability.”
4. The Potential Risks
Even with a 10‑percent yield, the article stresses that there are still risks:
- Credit Risk – MFA’s portfolio is heavily reliant on consumer and mortgage lending. A spike in delinquency rates could erode earnings.
- Regulatory Risk – Consumer‑finance and mortgage regulations are tightening in many jurisdictions. Any change could impact profitability.
- Liquidity Concerns – While the Series C shares are listed, their secondary market is not as deep as the common shares. Investors could face pricing pressure in a sell‑off.
- Conversion Dilution – Should the company decide to convert the Series C shares into common equity, existing shareholders could face dilution.
The author advises that prospective investors should evaluate these risks in light of their own risk tolerance and investment horizon.
5. Historical Performance of MFA’s Preferred Shares
The article includes a brief performance comparison of MFA’s Series B and Series C shares. Historically, the Series B share has traded at a discount to its intrinsic value during market downturns. The Series C share, due to its higher yield, has outperformed many other high‑yield preferred instruments. The author uses a simple chart that plots the two series side‑by‑side over the past 12 months, showing a steady 3% upward drift for the Series C share.
6. The Bottom Line: Is MFA Financial Worth Buying?
The Seeking Alpha piece concludes with a clear, but cautious, recommendation:
- For income investors who prioritize a high yield and are willing to accept the moderate risks outlined, the 10‑percent Series C shares are a “strong play.”
- For growth investors focused on equity upside, the common shares might still be preferable, especially if the company can continue to deliver robust earnings growth.
- For the risk‑averse who want the stability of a regulated financial institution, MFA’s diversified model and the added security of preferred dividends make it a “reasonable addition” to a balanced portfolio.
The article ends with a friendly reminder that “every investor’s situation is unique, and a single piece of research should never be the sole basis for a portfolio decision.”
7. What the Article Links To
- MFA Financial’s 10‑Q filing (FY 2023) – Provides detailed revenue breakdown and loan performance metrics.
- S&P Capital IQ data on MFA’s credit rating – Confirms that the company remains investment grade.
- Industry analysis on high‑yield preferred stocks – Offers a benchmark for how MFA’s Series C shares stack up against similar instruments.
These links add depth to the article’s analysis, giving readers the opportunity to dive deeper into the company’s fundamentals and the broader market context.
Final Thoughts
MFA Financial’s decision to issue a new 10‑percent Series C preferred share reflects the company’s attempt to balance yield demands with the need for stable, long‑term cash flow. While the offer presents an attractive income opportunity, it’s not without its caveats. As the Seeking Alpha article highlights, investors should weigh the potential upside against credit, regulatory, and liquidity risks before deciding to flip into the Series C shares. With a disciplined approach and a clear understanding of the underlying risks, the 10‑percent preferred shares could serve as a valuable component for income‑focused portfolios.
Read the Full Seeking Alpha Article at:
[ https://seekingalpha.com/article/4818724-mfa-financial-why-im-flipping-back-to-the-10-percent-yielding-series-c-preferred-shares ]