Historic and Current Yield Comparisons for Large Mortgage REITs

by: Zvi Bar

Investors seeking higher yielding income equities often consider or hold mortgage REITs. These mREITs offer some of the highest yields in the equity and even bond markets (outside of Greece). This is a review of the historic, year-end yield levels for seven of the largest high-yield mREITs that I have found to be relatively liquid.

Yield can go down even while the dividend increases, in situations where the shares (equity) appreciate at a rate faster than the dividend’s growth. Therefore, while dividend growth is a function of the company and its management’s decisions, the yield per share is also a function of the market pricing of the company, its assets, and its dividend payout rate/growth. Here, I have charted and included the dividends paid within the last five years unless the REIT has traded for less than that term, in which case the records go back to their oldest ending year.

These seven mREITS all currently yield between 10% and 20% percent annually, or somewhere between 2.5x to 4.5 times the rate for a 30-year U.S. Treasury. Several of the mREITs also only hold U.S.agency-backed mortgages (with leverage), which carry an implied agency backing. Others hold higher risk paper non-agency, with lesser to no backing and far greater yields.

(Click charts to enlarge)

1. American Capital Agency Corp. (NASDAQ:AGNC)

2. Annaly Capital Management, Inc. (NYSE:NLY)
3. Anworth Mortgage Asset Corporation (NYSE:ANH)
4. Capstead Mortgage Corporation (NYSE:CMO)
5. Chimera Investment Corporation (NYSE:CIM)
6. Hatteras Financial Corp. (NYSE:HTS)
7. MFA Financial, Inc. (NYSE:MFA)
The larger REIT yields appear to have remained stable over the last 2-3 years. While these REITs do offer tremendous present yield, very little dividend growth is shown through the last two years, if any. This is primarily because of the REIT structure. REITs must distribute at least 90% of their taxable income in order to eliminate the need to pay income tax at the corporate level. Most REITs often choose to place secondary offerings in order to raise capital and increase market valuation. Moreover, as these REITs are invested in real estate paper, of either agency or non-agency type/backing, the value of this paper may be subject to potential future political actions, interest rate changes and/or further property devaluation. This risk has primarily shown itself in non-agency paper and REITs so far in 2011.

Disclosure: I am long NLY, CIM.

Disclaimer: This article should not be construed as personalized investment advice as it does not take into account your specific situation or objectives.