Updated on September 26th, 2025 by Bob Ciura
Real estate investment trusts (REITs) often attract investors with high dividend yields, sometimes exceeding 10%. One notable example is Ellington Credit Company (EARN), which boasts an impressive dividend yield of 16.9% as of now.
However, high yields can sometimes signal underlying challenges within the business. For Ellington, the increase in dividend yield is a result of a declining share price, reflecting the company’s current circumstances.
While Ellington may not be a household name, it made headlines in October 2021 when it transitioned its dividend payment schedule from quarterly to monthly. This change places EARN among the monthly dividend stocks.
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This article will delve into the investment prospects of Ellington Credit Company.
Business Overview
Ellington Credit Company operates as a closed-end fund, primarily focusing on corporate collateralized loan obligations (CLOs), particularly mezzanine debt and equity tranches. The company trades on the NYSE under the ticker symbol EARN and is based in Old Greenwich, Connecticut, with a market capitalization of approximately $214 million. It is externally managed by an affiliate of Ellington Management Group, LLC.
In April 2024, the company rebranded from Ellington Residential Mortgage REIT to Ellington Credit Company, signaling a strategic shift towards CLOs and away from mortgage-backed securities (MBS). This transformation was approved by shareholders on January 17, 2025, and completed on April 1, 2025.
On August 19, 2025, Ellington Credit reported its fiscal quarter results for the period ending June 30, 2025, revealing a net income of $10.2 million, or $0.27 per share, alongside adjusted net investment income of $6.6 million, or $0.18 per share. At the end of the quarter, the company held $36.6 million in cash and cash equivalents.
Growth Prospects
While Ellington has experienced a decline in adjusted distributable earnings per share, it has maintained an annual growth rate of 5.3% since 2019. Initially, the company kept its share count stable, but since 2016, the number of shares outstanding has increased, posing challenges for per-share earnings growth.
With the recent pivot towards CLOs, Ellington Credit has expanded its CLO portfolio by 27% sequentially to $317 million, increasing its capital allocation to CLOs to 87%. Given this strategic refocus, we anticipate an earnings per share growth rate of 6% annually over the next five years.
Competitive Advantage & Recession Performance
Ellington prides itself on having a team of experienced portfolio managers and advanced proprietary models for prepayments and credit analysis, developed over its 30-year history. Approximately 20% of its workforce is dedicated to research and information technology.
While specific details about the company during the 2008 real estate crash are not public, it is likely that a similar recession would adversely impact EARN. Although its focus on government-sponsored MBS offers some protection, a prolonged economic downturn could negatively affect its financial performance and lead to further dividend reductions.
Dividend Analysis
Historically, Ellington has cut its dividend nearly every year, with a brief increase in 2021 followed by a shift to monthly payments. However, in May 2022, the dividend was reduced by 20%. Over the past decade, the payout ratio has often hovered around or above 100%, indicating potential sustainability issues.
Currently, with a dividend of $0.96 per share, EARN stock yields nearly 17%, making it appealing for income-focused investors. However, the dividend’s reliability is questionable due to its history of cuts, and the payout ratio is projected to be 105% for 2025. A payout ratio exceeding 100% raises concerns, as it suggests the company is distributing more than it earns.
Given these factors, the dividend appears unsustainable at the current earnings level.
Ellington Credit’s historical performance in core earnings per share and dividends has been disappointing, with multiple cuts leading up to 2021 and again in 2022. Despite the high yield, the volatility of results makes it a risky investment.
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