Sachem Capital Corp. (SCCG)
SCCG is a class of preferred stock issued by Sachem Capital Corp., a private real estate lender. Preferred shares occupy a middle rung of the capital structure: they have higher priority than common equity in receiving dividends and in bankruptcy distribution, but lower priority than debt. Sachem Capital’s preferred shares are cumulative, meaning any dividend payments not made in a given period accrue and must be paid before common shareholders receive anything. The dividend rate is fixed at issuance, typically ranging between 7–10% depending on the series and market conditions when issued. For income investors, preferred shares in lending companies represent a hybrid between bonds and equity: higher yield than bonds, but subject to credit risk and less liquid trading than established debt securities.
The preferred share structure
Sachem Capital, like many financial services and real estate companies, has issued multiple series of preferred stock to raise capital and optimize its cost of funds. Each series has its own terms: a fixed dividend rate, a redemption (call) price at which the company can repurchase the shares, and sometimes conversion rights into common stock or other features. When an investor buys SCCG, they are buying into a specific series of Sachem’s preferred shares, entitled to its stated fixed dividend paid quarterly, and ranking ahead of Sachem common shares if the company faces financial stress.
Preferred shares exist because they allow companies to raise capital at a rate cheaper than debt while preserving the tax deductibility (in some jurisdictions) of dividends paid. For investors, they offer a yield higher than bonds, with the trade-off that the dividend can be suspended (unlike debt interest, which must be paid or the company defaults) and the shares are less liquid and more volatile in price than bonds.
The dividend and sustainability
Sachem’s ability to pay the fixed preferred dividend depends on profitability. The company’s earnings fluctuate with the real estate cycle, origination volumes, credit losses, and interest rates. In years when net income is strong, the preferred dividend is safe and likely to be maintained. In years when credit losses spike or origination slows, the company may still have enough earnings to cover the preferred dividend, but common shareholders receive nothing (this is the cumulative feature working as intended). If earnings decline severely enough, the company might struggle to cover the preferred dividend, raising the risk of deferral or suspension.
The preferred dividend rate is fixed, which means it does not adjust with market conditions. If Sachem issued a series of preferred at 8% when it was relatively risky, and the company’s risk profile later improves, investors in that preferred series have locked in a rate that others might have obtained at 7% or lower. Conversely, if the company’s credit quality deteriorates, the fixed 8% rate may no longer adequately compensate for the higher risk. The market price of the preferred share adjusts to reflect this: if investors now demand 10% yield due to increased risk, a preferred with an 8% coupon will trade at a discount to par.
Liquidation priority and bankruptcy scenarios
In a bankruptcy or major financial distress, preferred shareholders rank ahead of common shareholders but behind all debt. If Sachem’s assets liquidate, the company first pays off bank debt, senior secured lenders, and other creditors. What remains goes to preferred shareholders pro rata, then to common shareholders if anything is left. This seniority is valuable — it improves the odds of recovery — but it is not a guarantee of full recovery. If the company faces a severe real estate downturn, loan defaults accumulate, and assets decline significantly in value, preferred shareholders may recover only cents on the dollar.
The practical floor for a preferred share’s value in distress is approximately the cash still owed on it (the redemption price), adjusted for the time value of waiting through a bankruptcy process. A preferred with a $100 par value and a 8% cumulative dividend might trade at 70–80 in genuine distress, because investors view a recovery scenario of roughly that magnitude plus accumulated dividends. Below that range, the preferred is likely mispriced or the market is pricing in an extreme loss scenario.
Redemption and call risk
Sachem has the right to redeem (call) its preferred shares at a price set at issuance, typically close to par plus accrued dividends. If interest rates fall sharply, Sachem has an incentive to call in older, higher-coupon preferred shares and replace them with new preferred at lower rates. From the investor’s perspective, this is call risk: you receive your capital back at a set price just when yields have fallen and reinvestment options are worse. This is why preferred shares typically trade at a discount to their call price in low-rate environments.
Conversely, if rates rise, the call risk diminishes — Sachem will not voluntarily redeem shares paying a comparatively attractive fixed rate. But the preferred’s market price will fall because the fixed dividend is now less appealing relative to newly issued preferred with higher rates.
Risk concentration and the lending cycle
SCCG’s risk is fundamentally tied to Sachem Capital’s business success. If Sachem’s loan portfolio performs well, originates at attractive spreads, and maintains acceptable credit losses, the preferred dividend is secure and likely paid in full. If Sachem faces a major credit deterioration or earnings collapse, the preferred dividend becomes at risk of suspension or deferral. Unlike a bond issued by a bank or utility, which has diversified earnings streams, SCCG has single-business-line risk: it is entirely dependent on private real estate lending conditions.
The company is also cyclical. Strong real estate markets drive high origination volumes and low default rates, supporting the preferred dividend. Weak real estate markets drive low volumes and high defaults, threatening it. An investor in SCCG is making a bet on Sachem’s credit quality and the broader real estate cycle, not on a diversified income stream.
Alternative income securities
Investors seeking similar yields with lower specific risk might consider preferred shares in larger, diversified financial institutions (preferred shares issued by major banks, diversified financial services firms, or REITs with multiple income streams). They might also consider bonds or securitized portfolios backed by multiple originators rather than a single company. SCCG offers higher yield than those alternatives, precisely because it carries higher risk.
How to research Sachem Capital preferred shares
Begin with Sachem Capital’s annual 10-K and quarterly filings (SEC CIK 0001682220), which detail all outstanding preferred series, their terms, dividend rates, and par values. Watch the company’s earnings power (net income, earnings per share on a fully diluted basis) relative to the preferred dividend obligations — if earnings fall below the preferred dividend obligation by a comfortable margin, the company faces pressure to cut the common dividend or suspend the preferred. Monitor the company’s capital structure: how much debt does it carry relative to equity, and what is the stated maturity profile of that debt. Rising leverage or debt maturities approaching default risk levels would threaten the preferred dividend.
Look also at the company’s interest-coverage ratio (earnings divided by interest and preferred dividend obligations) and trend it over time. Track the loan portfolio’s performance metrics: origination volumes, loss rates, and average spreads. Finally, monitor the broader credit market: how much spread do newly issued preferred shares from similar companies command? If the market is demanding a 300 basis-point premium for new preferreds in the private lending space, while SCCG is trading to yield only 200 basis points above comparable Treasuries, the preferred may be mispriced.