Monthly Dividend Stock In Focus: Ellington Financial

Updated on March 31st, 2025 by Nathan Parsh

Investors are often attracted to dividend-paying stocks because of the income they produce. Dividend stocks provide income even while the price of the stock can fluctuate.

Some companies pay monthly dividends, which provide more consistent cash flow for investors. Nearly 80 stocks pay a monthly dividend.

You can download our full list of monthly dividend-paying stocks (along with price-to-earnings ratios, dividend yields, and payout ratios) by clicking on the link below:

 

Ellington Financial Inc (EFC) is a Real Estate Investment Trust (REIT) that pays a monthly dividend. The stock has a very high dividend yield of 11.8%.

However, such high-yielding stocks can be flashing a warning sign that the underlying business is facing challenges. Stocks with extremely high yields above 10% might disappoint investors with a dividend cut later on. Those “yield traps” should be avoided.

This article will examine Ellington Financial’s business model, growth prospects, and its dividend safety.

Business Overview

Ellington Financial only transitioned into a REIT at the beginning of 2019. Before this, the trust was taxed as a partnership. It is now classified as a mortgage REIT.

Ellington Financial is a hybrid REIT, meaning that the trust is a combination of an equity REIT, which owns properties, and mortgage REITs, which invest in mortgage loans and mortgage-backed securities.

The company manages mortgage-backed securities backed by prime jumbo loans, Alt-A loans, manufactured housing loans, and subprime residential mortgage loans.

Ellington Financial has a market capitalization of about $1.2 billion. You can see a snapshot of Ellington’s investment portfolio in the image below:

Source: Investor Presentation

On February 27th, 2025, Ellington Financial reported its Q4 results for the period ending December 31st, 2024. Due to the nature of the company’s business model, Ellington doesn’t report revenue. Instead, it records only income.

For the quarter, gross interest income was $108 million, up 9.4% year over year and 6.2% quarter over quarter. Adjusted (previously referred to as “core”) EPS was $0.45, $0.18 better than Q4 2023 and five cents higher than Q3 2024.

The rise was driven by strong originations and securitization-related gains in Longbridge Financial, which the company purchased in 2022. Ellington’s book value per share fell from $13.66 to $13.52 for the quarter.

Growth Prospects

Ellington’s EPS generation has been quite inconsistent over the past decade, as rates have mainly been decreasing over that time. As a result, its per-share dividend has also mostly been falling since 2015.

However, the company has done its best to diversify its portfolio and reduce its performance variance.

Additionally, its residential mortgage investments are diversified among many different security types (Non-QM, Reverse mortgages, REOs, etc.).

Ellington has taken steps not to concentrate its risk its portfolio, which improves economic return volatility.

Source: Investor Presentation

Ellington has designed its portfolio in such a way that movements in rates over time won’t have a major impact on its overall portfolio.

The Federal Reserve has stated it is likely to decrease interest rates in the future if inflation reaches its target, which would benefit the company.

At Ellington’s current portfolio construction, a 50 basis point decline in interest rates would result in $2.2 million in equity gains (i.e., 0.14% of equity), while a 50 basis point increase in rates would result in losses of $9.7 million (-0.61% of equity).

We expect 1% annual EPS growth over the next five years for EFC.

Competitive Advantage & Recession Performance

Ellington does not possess any significant competitive advantage, but one advantage is that the balance sheet remains of high quality.

For instance, EFC’s recourse debt to equity ratio was 1.8x in Q4, stable on a sequential basis but down from 2x at the end of 2023 due to a decline in borrowings on its smaller but more highly levered Agency RMBS portfolio and a drop in its recourse borrowings related to its securitization of proprietary reverse mortgage loans.

Regarding recession performance, Ellington Financial was not a public company during the Great Recession, but its share price was decimated at the onset of the COVID-19 pandemic.

EFC’s earnings and dividends have recovered since the pandemic ended, but both measures remain below their 2014 levels.

Dividend Analysis

Ellington Financial has a volatile dividend history with multiple reductions followed by increases. The company cut its monthly dividend from $0.15 to $0.08 in Q1 2020 due to the pandemic, but management has increased it several times since then.

In Q4 2023, EFC cut the monthly dividend from $0.15 to $0.13, which the board approved to build some equity value. The dividend has remained at the same rate since. Currently, EFC has an annual dividend payout of $1.56 per share.

This is a problematic sign for the dividend’s safety, and therefore, the company’s DPS should not be seen as safe for the time being.

With a yield approaching 12%, the stock is undoubtedly attractive for income investors, although a high level of volatility is to be expected.

Ellington’s payout ratio has averaged 85% over the last five years, though it has often been above 100% previously. Investors should be aware that the expected payout ratio for 2025 is 111%.

Since its IPO, the company has paid cumulative dividends in excess of $34/share, which is nearly three times its current share price. Therefore, it has delivered a solid income stream to its shareholders over the years.

Final Thoughts

High-yield dividend stocks must always be considered carefully, as their elevated yield is often a warning sign of fundamental deterioration.

This seems to be the case with Ellington Financial, as the company has exhibited great volatility in its dividend payments.

The trust has a diversified loan portfolio and has successfully increased its profitability over time. Ellington Financial’s dividend yield also looks safe for now, though another cut could be possible if the trust saw a slowdown in its business.

EFC has an attractive yield of 11.8%, but the stock carries an elevated level of risk.

Additional Reading

Don’t miss the resources below for more monthly dividend stock investing research.

And see the resources below for more compelling investment ideas for dividend growth stocks and/or high-yield investment securities.