What Is a Mortgage REIT?

Real estate investment trusts (REITs) are companies that invest in real estate assets. "Equity" REITs invest in physical real estate such as hotels, office buildings, apartments, and malls. Mortgage REITs (mREITs), however, invest primarily in the mortgages and mortgage-backed securities that finance real estate. Special tax treatment for REITs requires that they pay out most of their profits to shareholders, so most REITs and mREITs pay big dividends.

Investing in Mortgage REITs

Why invest in an mREIT? In a word: Dividends. As mentioned above, rules around qualifying as a REIT require them to hand over most of their profits to stockholders. And while that typically means sizeable dividends for equity REIT owners, it often means even larger yields for mortgage REITs. A well-managed mREIT can also grow its balance sheet and expand over time, giving shareholders a shot at an even larger dividend and a higher stock price.