Not all dividends are created equal. Here, we'll do a top to bottom analysis of a given company to understand the quality of its dividend and how that's changed over the past five years.

The company we're looking at today is Invesco Mortgage Capital (NYSE: IVR), which yields 16.8%.

Most real estate companies, including Invesco Mortgage Capital, are organized as real estate investment trusts, or REITs. They do this so that they can get around the double taxation issue that most investors face. REITs don't pay taxes as long as they distribute at least 90% of their income as dividends. The investor holding shares of the REIT then has to pay taxes on those dividends as though they were income. This differs from most dividends, which are taxed at a lower rate.


To evaluate the quality of a dividend, the first thing to consider is whether the company has paid a dividend consistently over the past five years, and if so, how much it has grown.

Invesco Mortgage Capital Dividend Chart by YCharts

Invesco Mortgage Capital's dividend has been all over the place since it IPO'd in 2008.


For a mortgage REIT, the most important measure to follow is a company's interest-rate spread. This is the difference between the rate at which the company borrows money and the rate at which it lends money out.

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

Invesco Mortgage Capital's interest-rate spread, while declining, is still very high and will likely remain so until interest rates begin rising again. And as the Federal Reserve has stated they won't raise rates until 2014 at the earliest, you have some time before this will happen.

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