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Friday, 08/08/2003

Hitting their Target Range Means Extra Pocket Change
By Nich Sheldon
RWT - Redwood Trust Inc

Company Description

Redwood Trust, Inc. invests in real estate loans, both in whole loan form and in securitized form. The Company's largest investment is in jumbo residential real estate loans, which have mortgage balances that exceed the loan limit imposed on Fannie Mae and Freddie Mac, both of which are United States government-sponsored investors in residential real estate loans. For more information go to

[Source: Company Web Site]

Reasons to Invest:

You know that feeling you get when you find a few dollars folded up in a pair of jeans you haven't worn for a while? Well imagine the feeling you would get, a few months down the road, when you cam across that same pair of jeans and there was a $20 dollar bill in your pocket. It would feel great. Wouldn't it? I am not sure why we get so excited over finding money that worked hard to earn. I think it has something to do with the fact that we forgot we even had the money to begin with. This is how I feel about DRIPs. From time to time we invest money into a stock. Whether it is every month, quarter or year, we keep pitching money into that same investment, and when the time is right we sell that investment for a profit. If you can imagine throwing money into that same pair of jeans every week, not planning on reaching into the pockets for a year or two, then you would be surprised how much money you have when you went to throw that pair back on. This week we are spotlighting a stock that we feel has the potential to rocket from $40 to $60 over the next few years. This would mean that finding that $20 in your jeans, may just be feasible.

Redwood Trust, Inc. is a finance company that specializes in the mortgage portfolio lending business. After their first quarter earnings were announced, we were nothing shy of impressed. Their revenues rose 99% to 61.1 million. DRIP investors can easily see that if revenues can raise nearly 100% in one quarter, this company has the potential to get vertical, and get there fast. Their revenues were indicative of higher income from residential loans, and we all know that residential loans are a hot market right now. Their net income rose 33% to $14.9 million, which is a reflection of their higher provisions for excise and income taxes.

What's more extraordinary is their hefty dividend yield of 6.62%. Their annual dividend is $2.60, which is way higher than most of the DRIPs that we highlight here on is also phenomenal. It may sound as though we feel we have found the pot of gold at the end of the rainbow, and the optimistic side of me would say that we have. Nonetheless, most pessimistic traders know that the market is not as predictable as we all would like it to be. However, is this not the beauty of investing in DRIPs? We are long-term traders, who cherish the stock we buy because we are buying into that given company. We are hoping that our portfolios will grow over time and that is the reason that we continue to monthly, quarterly or yearly drop money into their stock.

Redwood Trust was listed on the NYSE in 1998. Over the past few years they have traded sideways with a slight bullish trend that slowly edges higher. On June 12th, of this year, they hit their all time high of 42.75 and then proceeded downward as bulls sought profits. Profit taking continued for RWT until it hit 34.70 a week ago. Since then this company has been seeing higher highs and increased volume. Right now the stock looks like a buy as the dip last week should provide a better entry point for us DRIP investors. The MACD is starting to show signs of a bullish signal, however confirmation of this signal may take a few days.

We were curious what may have caused the bullish strength over this past week, so we looked into the company's press releases, only to find something more interesting. announced today that Redwood Trust is their top pick in mortgage finance. The price target they saw for RWT was $60, and we couldn't agree more. In case we are too optimistic, and sometimes we can get ahead of ourselves, on July 25th, 2003, WE Hambrecht gave RWT a price target of $47 because of the company's strong quarterly results and growth prospects. If the company was to hit 47 within the next year, what's stopping the price target of $60 within the next two years?

Wait, it gets better, RWT announced today (Friday August 8th, 2003) that their Board of Directors declared a regular cash dividend of $0.65 per share for the third quarter of 2003. The payable date for this dividend would be October 21st, 2003 for shareholders on record by September 30th. This would mean that you DRIP investors, who bought into RWT before September 30th, would receive $0.64 per share that you owned. This is a nice added bonus, just for choosing to invest in this mortgage company. There really is not much more to say about this company, but we would recommend that you do your own research as always. Nothing in this market is a sure thing. For this reason alone, we try and narrow it down by explaining what has caught our eye.

One last thing we can leave you with is a little info from Redwood Trust's website. This information comes from their Drip & Stock Purchase Plan page.

The Company is pleased to offer a Dividend Reinvestment and Stock Purchase Plan.

The Plan allows shareholders to reinvest their common and preferred dividends into Redwood Trust common stock at a 2% discount to the market price, without incurring fees or commissions.

The Plan also gives existing and prospective shareholders the opportunity to purchase up to $5,000 of common stock per month directly from the Company, without incurring fees or commissions, at up to a 2% discount to the market price. Waivers may be granted for purchases in excess of $5,000. For additional information on the Plan, please call the Plan Administrator at (888) 877-2882 or the Company at (415) 389-7373.

Until Next Week,
Nich Sheldon

DRIP Information:
Shares to Qualify = 1
Auto-reinvestment = No
Accept Foreign Accounts: No
Temper Enrollment:  Yes

Min/Max Investment = $500 to $5,000/month

Reinvestment Fees - 
Dividend investment fees: None
Cash investment fees: None
Auto reinvestment fees: None

Transfer Agent:
Mellon Investor Services 
Overpeck Centre 
85 Challenger Road 
Ridgefield Park, NJ 07660  
Phone (800) 851-9677 

Corporate Headquarters:
591 Redwood Highway, Suite 3100
Mill Valley, CA 94941 
Phone: (415) 389-7373
Fax: (415) 381-1773


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