If anyone knows what pain is, it's a shareholder of Armour Residential REIT (NYSE:ARR): Shares of this mortgage REIT are down 4% over the last 12 months, but they have also lost a staggering 45% of their value over the last two years.

Though Armour Residential's forward dividend yield of more than 15% (data courtesy of S&P Capital IQ) looks more than just appealing, and is even larger than the 11%-12% dividend yields offered by peers American Capital Agency Corporation (NASDAQ:AGNC) and Annaly Capital Management (NYSE:NLY), investors should consider the drastic decline in Armour Residential's book value since 2012 before they make an investment decision.

Armour Residential is structured as a mortgage REIT that invests predominantly in agency residential mortgage-backed securities including hybrid adjustable-rate, adjustable-rate and fixed-rate RMBS. Agency securities benefit from an implicit guarantee from government-sponsored enterprises Fannie Mae and Freddie Mac, which guarantee interest and principal payments on the underlying mortgages of these securities.

Mortgage REITs like Armour Residential are high-yielding income vehicles that often have double-digit dividend yields and provide investors with monthly or quarterly dividend income, and are therefore a popular choice among yield hunters. However, choosing a mortgage REIT just because it exhibits a high dividend yield, is not smart investing at all.

Don't just look at the dividend yield
Looking solely at a mortgage REITs dividend yield can be a big mistake and can lead to poor investment returns.

For instance, if you bought Armour Residential's shares two years ago, you would have indeed pocketed two years' worth of dividends at a high annual yield, but the decline in Armour Residential's share price would have more than offset your cash flow income: The stock just got completely hammered over the last 24 months with a 45% loss of value.

The reason why Armour Residential did so poorly is twofold: First, the mortgage REIT presented shareholders with a poor record of creating value by investing in mortgage securities over the last two years. Secondly, Armour Residential is perceived as a risky mortgage REIT choice with a leverage ratio that remains extraordinarily high (and actually increased year over year): In the most recent quarter, Armour Residential reported a leverage ratio of 8.42 times, which compares against last year's 6.93 times. 

Disappointing book value history
Ever since the mortgage REIT sector was thrown into turmoil in 2013 and the market started to dramatically reprice mortgage REITs amid a fundamentally changing interest rate environment, Armour Residential started to suffer.

The trend in Armour Residential's book values per share is not something to get excited about at all: Since 2012, the mortgage REIT has lost 37% of its book value per share, and also continued to bleed book value in 2014. In the third quarter alone, Armour Residential lost a staggering amount of its per share net asset value: 6.5%. This record is value destruction is clearly not something investors appreciate.

Dividends are strongly trending downward
Armour Residential's dividend record is also less than appealing and actually sends quite the opposite message than its juicy dividend yield would suggest: Its annual payments to shareholders have consistently declined over the last four years and, if the dismal book value growth trend can't be reversed, investors need to be prepared for further dividend cuts in the future.

For the time being, Armour Residential pays investors $0.05 per share monthly, or $0.60 per share annually. Armour Residential's dividend record suggests, however, that peak earnings and dividends have already occurred in the past.

Source: Armour Residential Investor Relations Website

The Foolish takeaway
Although Armour Residential's dividend yield is juicy, the underlying shareholder value creation record is poor. In fact, investors who bought Armour Residential's stock two years ago have not recovered from their capital losses, despite its 15% dividend yield.

Unless Armour Residential demonstrates its ability to deliver better results in its RMBS investment business, investors should stay clear of this company. Moreover, Armour Residential's high leverage ratio and consolidating dividend payments are also not justifying an endorsement of this mortgage REIT.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.