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This High-Yield REIT Looks Gold-Plated

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Armour Residential REIT (NYSE: ARR  ) released its second-quarter earnings earlier this week, and favorable business conditions for Armour make it look gold-plated. That follows similar news from peers Annaly Capital (NYSE: NLY  ) and Chimera (NYSE: CIM  ) that continue to make the mortgage REIT sector look attractive.

The company reported core income of $18.6 million, and book value for the quarter came in at $7.14, just below the company's share price. The company also reported an interest rate spread of 2.36% for the quarter, a 4 basis point downturn from the first quarter.

Investors need to keep an eye on the trend in interest spreads, since it signals the health of the company's business. Armour's performance is more or less in line with that of peers, although spreads did drop at some competitors.


Q2 Spread

Q1 Spread

Armour 2.36% 2.40%
Annaly 2.45% 2.17%
Chimera 4.20% 4.71%
American Capital Agency (Nasdaq: AGNC  ) 2.46% 2.58%
Cypress Sharpridge (NYSE: CYS  ) 2.23% 1.83%

Source: Capital IQ, a division of Standard & Poor's.

The company maintained a debt-to-equity ratio of 879% for the quarter, which is high relative to peers, but it's exactly that leverage that allows the company to pump out that generous 19.7% yield.




Armour 879% 19.7%
Annaly 577% 14.9%
Chimera 189% 17.4%
American Capital Agency 739% 19.9%
Cypress Sharpridge 745% 19.0%

Source: Capital IQ, a division of Standard & Poor's.

In the quarter, Armour raised millions more in capital through a share issuance, following a path that Annaly, Chimera, and Invesco Mortgage Capital (NYSE: IVR  ) have trod in recent quarters. Money is quickly flowing into mortgage REIT. Yesterday, another player entered the space with the IPO of American Capital Mortgage (Nasdaq: MTGE  ) .

Foolish bottom line
With unemployment staying at high levels and interest rates remaining low, business conditions look favorable for Armour. That was underscored by comments from Annaly and Chimera earlier in the week. Annaly's CEO stressed that the sector would continue to see favorable operating conditions for a "significant period of time." So things look solid gold for Armour in the near future, and that's just the kind of news that dividend investors want to hear.

Click here to add Armour Residential REIT to My Watchlist.

Jim Royal, Ph.D., owns shares of Annaly. The Motley Fool owns shares of Chimera and Annaly. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Related Tickers

10/28/2016 4:02 PM
ARR $22.57 Up +0.10 +0.45%
ARMOUR Residential… CAPS Rating: ***
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CYS Investments CAPS Rating: ****
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