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ETRACS Monthly Pay 2x Leveraged Mortgage REIT ETN declared a monthly dividend for April of $1.0129.

This is an increase of 25.5% from the $0.8072 paid in the last “big month” of January 2014.

On a monthly compounded basis, the effective annualized yield is 21.8%.

ETRACS Monthly Pay 2x Leveraged Mortgage REIT ETN (NYSEARCA:MORL) declared a monthly dividend for April of $1.0129. This is an increase of 25.5% from the $0.8072 paid in the last "big month" of January 2014. It is also the highest monthly dividend since the July 2013 payout of $1.1045. The main reason for the increase is that 5 of the 21 components that go ex-date in March have increased their dividends, and none have cut them. Those increasing their dividends include the number 3 and 4 most important components: NRF, which increased its payout from $0.21 to $0.25, and Starwood Property Trust Inc (NYSE:STWD), which increased its payout from $0.46 to $0.48.

As I explained in this article, 30% Yielding MORL, MORT And The mREITs: A Real World Application And Test Of Modern Portfolio Theory, MORL pays widely varying dividends each month, since most of the mREITs in the basket pay dividends quarterly on various schedules. During any three-month period, usually all of the components would have paid their dividends. The January, April, October and July "big month" MORL dividends are much larger than the "small month" dividends paid in the other months. This is because about 80% of the portfolios pay quarterly. They typically have ex-dates in the last month of the quarter and payment dates in the first month of the next quarter.

In my article MORL Composition Changes Indicate Higher April Dividend And Yield Of 22%, I said one complicating factor with MORL is the expense ratio. Various retail brokerage firms like Schwab, Fidelity and Scottrade indicate that both the net and gross expense ratio for MORL is 0.35%. Since MORL is an Exchange Traded Note rather than a fund, it does not make the disclosures about fees that funds do. UBS does indicate that there is a 0.40% tracking fee and that there is an interest expense on the half of the assets that are borrowed based on the LIBOR rate. From that I estimate a .80% net expense ratio. The effect on the dividend is not very large if the lower expense ratio of .35% is used. Instead of a $0.9951 April dividend for MORL, the lower expense ratio of .35% results in a $1.0034 April dividend for MORL.

The dividend for April of $1.0129 suggests that the lower expense ratio may be more accurate. Another factor is the increase in net asset value that MORL has had recently. As I indicated in: MORL's Net Asset Value Rises - Implications For The Dividends, an increase in the net asset value results in a commensurate increase in the dividend as the leverage is rebalanced.

The dividend being slightly higher than my projection could have been due to the timing of when the dividends are included in the monthly distribution. RAIT Financial Trust (NYSE:RAS) and Dynex Capital Inc (NYSE:DX) both went ex-dividend on April 2, 2014 with pay dates of April 30, 2014. PennyMac Mortgage Investment Trust (NYSE:PMT) goes ex-dividend on April 14, 2014, with a pay date of April 30, 2014. I did not include those in the April dividend calculation, even though they have declared dividends that will be paid in April 2014. I have included NorthStar Realty Finance Corp. (NYSE:NRF), Redwood Trust Inc (NYSE:RWT), Newcastle Investment Corp. (NYSE:NCT) and New Residential Investment Corp. (NYSE:NRZ), which have both ex-and pay dates in March 2014. Armour Residential REIT (NYSE:ARR) pays monthly, and it has announced its dividends for the next 12 months, so it is certain that the ARR dividend of $0.05 will be included in every month.

At some point in the future, there should be some beneficial impact from the reinvestment of higher-yielding mortgage securities entering the mREITs' portfolios. Newly issued mortgage-backed securities usually settle about two months after the purchase date. Each month an mREIT generally receives principal payments on its mortgages of about 3/4 of a percent of the outstanding balance. As I indicated in my article: Federal Reserve Actually Propping up Interest Rates: What this means for mREITs, higher long-term rates while short-term rates remain low actually increases the spread income of agency mREITs.

The $1.0129 April 2014 MORL dividend results in a total of the dividends for the most recent three months of $1.092; this is a 19.9% simple annualized yield with MORL priced at $22. On a monthly compounded basis, the effective annualized yield is 21.8%.

If someone thought that over the next five years, interest rates would remain relatively stable and thus MORL would continue to yield 21.8% on a compounded basis, the return on a strategy of reinvesting all dividends would be enormous. An investment of $100,000 would be worth $267,675 in five years. More interestingly, for those investing for future income, the income from the initial $100,000 would increase from the $21,800 initial annual rate to $58,353 annually.

Disclosure: I am long MORL, RAS, AGNC, CYS, ARR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.