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The Basics of Western Asset Mortgage

By Amanda Alix - Updated Apr 7, 2017 at 12:47PM

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A basic primer on mREIT Western Asset Mortgage, just in time for Worldwide Invest Better Day.

For well-nigh 20 years now, the Motley Fool has been here to help you invest better and smarter, using spot-on analysis and a razor-sharp wit. To celebrate Worldwide Invest Better Day on September 25, we are taking some time to get back to the basics -- of investing, that is. In that spirit, I have rounded up some sweet financial sector stocks that have been showing some real sparkle and promise lately.

Without further ado, let me introduce you to the focus of this particular article:  Diversified mortgage REIT Western Asset Mortgage (NYSE: WMC).

A newbie with a lot of gusto
Western Asset is a newcomer to the big board, making its debut just this past May. Since then, the REIT has been showing some real gumption, very recently rocking the mortgage real estate investment trust world by announcing a dividend of $0.85 per share -- more than doubling its previous payout of $0.38, covering just half of Q2.

The REIT is similar to other hybrid mREITs in that it invests in both agency and non-agency residential mortgage-backed securities. This separates companies like Western Asset and its brethren Two Harbors (NYSE: TWO), Apollo Residential Mortgage (NYSE: AMTG), American Capital Mortgage (Nasdaq: MTGE), and AG Mortgage (NYSE: MITT) from mREITs that only buy MBSes backed by Fannie Mae and Freddie Mac. This is an important distinction these days, since non-agency securities are, well, a little less secure -- making them a little more attractive to investors. As usual, the higher the risk, the better the return, and parched investors are falling over themselves trying to quench their thirst for better investment vehicles these days. So, despite the focus on agency MBSes, Western Asset is quite willing to take on slight risk to earn better returns for its investors.

Not surprisingly, analysts love this company. Forbes points out that insider buying is usually a good sign for a company, and something that investors should pay attention to. Recent buys include those by Western Asset's Chair, as well as its COO. The article also notes -- a bit reverently, I think -- the stock's annual dividend yield of 15.25%. In addition, analysts at National Securities, Compass Point, and Jefferies have firmly placed a "buy" rating on this excellent performer.

To be fair, Western Asset's peers have been pumping out lovely dividends, too. Apollo just announced its dividend of $0.85 as well, and AG Mortgage recently declared a dividend of $0.77, the same as Mortgage Investment. Only Two Harbors was low, at $0.36 per share.

A wonderful time to be a mREIT
This sector has been a reliable performer lately, producing lovely yields when other investments can barely cough up a penny or two for their investors. Though Western Asset is a new company, it has certainly been a standout so far. The future looks bright, too: The company has nearly $2 billion in financing available thanks to repurchase agreements it recently negotiated with nine counterparties. It looks like the business of buying short and lending long is still a lucrative one, and Western Asset Mortgage has some change burning a hole in its pocket.

I'll be covering other great stocks over the next couple of weeks, as will my fellow Fools. Check out our special website set up especially for this investing extravaganza at There will be lots of great articles posted there through September 25, all with a particularly informative take on various facets of investing. We'd love to have you on board, too -- so click through to the site and prepare to be informed and amused by the never-dull world of investing!

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Stocks Mentioned

Two Harbors Investment Corp. Stock Quote
Two Harbors Investment Corp.
$4.94 (-1.20%) $0.06
AG Mortgage Investment Trust, Inc. Stock Quote
AG Mortgage Investment Trust, Inc.
$7.77 (0.39%) $0.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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