Several mortgage REITs announced dividends over the past week or so, showing off some of the nicest payouts around and pointing out just why investors love these particular REITs. You can't necessarily tell how a company is doing just by its yield, however, so let's take a quick peek at how these guys have been performing lately.
REITs have been very attractive to investors tired of this low-interest-rate environment, since they are required by law to return 90% of earnings to their investors. Mortgage REITs, with their hefty annualized yields, are even more coveted. Low interest rates have been acting in these entities' favor, keeping a comfortable spread between the rates at which they can borrow and then invest funds.
Heavy-hitter Annaly Capital (NYSE: NLY ) came through with a yield of 13%, paying a $0.55 dividend, the same rate as last quarter. Another favorite, American Capital Agency (Nasdaq: AGNC ) recently yielded more than 15%, and Capstead Mortgage (NYSE: CMO ) returned more than 11%. Mortgage Investment Trust (NYSE: MITT ) yielded more than 10%, while Chimera Investment (NYSE: CIM ) produced a whopping 15% yield.
It certainly looks as if American and Chimera are going great guns, but Chimera is the dog here, having had a rough time lately. Unlike the other four, Chimera is a hybrid REIT, investing in both government-agency mortgage securities and those that are not backed by Fannie and Freddie. The company has cut its dividend several times in the recent past and dragged its feet reporting results the last two quarters. The current climate seems to be working against Chimera's investing style and that of mREITs like Annaly, which can borrow more based on its less-risky mortgage-based securities. As fellow Fool Dan Caplinger points out, being leveraged is working quite well right now.
The Federal Reserve has pledged to keep interest rates low until 2014, which is good news for mREITs. Operation Twist, which tightens the spread mREITs use to make money, has just been renewed, but these trusts have been dealing with this issue for some time, and so far the program doesn't seem to have had a major impact on their business plans.
Will the government's Home Affordable Refinance Program help or hurt mREITs? Some think it is hurtful because of the prepayments that occur prior to refinancing, always a problem with mortgage securities. On the other hand, I think the new loans may very well be a boon, since with this particular pool of borrowers, chances of prepayment should be low. If you're looking for an investment that makes the most of this low-interest-rate environment, you could do worse than look at mREITs.
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