Douglas E. Johnston
Long/short equity, hedge fund manager

CYS: A Nice Yielding REIT, BUT...

Recently, the residential REIT sector has come under significant pressure as mortgage rates rose to about 4% in the month of May, 50 odd basis points ((bps)) off their lows. (NYSE:CYS) was in that boat losing about 15% in market value which might, at first glance, seem over done presenting a buying opportunity. However, as we will discuss, mortgage REITs like CYS have significant interest rate (and other) risk exposures and with the likelihood of significant capital gains on their investment portfolios diminished, dividends will continue to come under pressure even if rates revert lower. While CYS's dividend for Q2 may be maintained at 32c, based on gains achieved earlier in the year, we estimate a steady state...

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