The Least-Leveraged Mortgage REITs and Their Big Yields

I recently listed the most highly leveraged mortgage REITs, or mREITs. I did this because there's at least some uncertainty about the industry's ability to avoid onerous regulation that "could threaten mortgage REIT returns by either restricting the massive amounts of debt used to boost returns or eliminating their tax exempt status." But even if no negative regulation surfaces, it's important to know the financing strategies being used.

Today, I want to look at the other end of the spectrum -- the mortgage REITs that get it done with low debt levels.

The highly leveraged mREITs mostly deal in agency securities, which are guaranteed by government-ish entities like Fannie Mae and Freddie Mac. The lower credit risk of the agency securities allow for this debt-stacking.

Meanwhile, on the lower-leveraged end, we see mREITs that are focused on commercial mortgages and non-agency-guaranteed residential mortgages.

Below are the sizable mortgage REITs (over $200 million in market capitalization) with the lowest leverage. I've also included their focus and dividend yields.

Company Name

Focus

Dividend Yield

Leverage (assets/equity)

Colony Financial (NYSE: CLNY  ) Commercial 8.5% 1.1
CreXus (NYSE: CXS  ) Commercial 11.6% 1.1
Starwood Property Trust (NYSE: STWD  ) Commercial 9.9% 1.5
PennyMac Mortgage Investment Trust (NYSE: PMT  ) Non-agency residential 12.2% 1.7
Chimera (NYSE: CIM  ) Non-agency residential 18.3% 2.9
Apollo Commercial Real Estate Finance (NYSE: ARI  ) Commercial 11.2% 3.1
NorthStar Realty Finance (NYSE: NRF  ) Commercial 12.0% 4.3

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

Like their highly leveraged counterparts, we see the less-leveraged REITs also achieve high returns that (as required)  get paid out as high dividend yields. While the former juice their returns by taking on high amounts of debt, the latter do so by investing in riskier loans and securities (and thus earning higher interest rates). Broadly speaking, the difference is between more financing risk on the one hand, and more portfolio risk on the other.

Pick your poison .. or don't. For a look at some less-complex dividend stocks, check out the popular Motley Fool free report: "13 High-Yielding Stocks to Buy Today." Click here for a free copy.

Anand Chokkavelu does not own shares of any company mentioned. The Motley Fool owns shares of Chimera Investment. 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.

Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1552552, ~/Articles/ArticleHandler.aspx, 10/25/2014 12:54:21 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement