High Yields: Buying the Panic in Mortgage REIT Stocks

The U.S. debt limit debate and default concerns have push the markets lower and raised concerns that interest rates could spike up if the U.S. defaults. The possibility of higher rates have caused some investors to cash out of their mortgage real estate investment trust (REIT) stocks. The lower prices are creating an exceptional buying opportunity since a debt default is probably more about noise than reality, plus higher rates are already priced into these stocks.

The dividend payouts from these companies will beat almost every investment for investors seeking income and they are also trading below book value in some cases. If a debt agreement is reached soon, these stocks could rebound quickly off their recent lows. Even if these stocks stay at these levels for a long time, the dividend is rewarding you to wait. As with any investment, it makes sense to average into these stocks so you can take advantage of any dips. The downside risk appears limited and if these stocks drop further, you can wait for dividend payments to lower your cost basis. Here are some top mortgage REIT picks:

Annaly Capital Management, Inc., (NLY) is trading around $14.50. Annaly is a mortgage REIT based in New York. These shares have traded in a range between $16.73 to $18.79 in the last 52 weeks. The 50 day moving average is $17.78 and the 200 day moving average is $16.86. NLY is estimated to earn about $2.53 per share in 2011. The book value is stated at $15.76 so these shares are trading at a small premium to book. The dividend is very generous at $2.60 per share which is equivalent to a 14.5% yield.

Hatteras Financial Corp (HTS) is trading around $24. Hatteras is a mortgage REIT based in North Carolina. These shares have traded in a range between $27.11 to $31.98 in the last 52 weeks. The 50 day moving average is $28.16 and the 200 day moving average is $27.58. HTS is estimated to earn about $4.23 per share in 2011. Multiple insiders were buying this stock at $28.50 in March. You can see the insider buying here. The book value is stated at $26.11 so these shares are trading at a small premium to book. The dividend is very generous at $4 per share which is equivalent to about a 14% yield. With that kind of payout, and when yields in other investments are still very low, it's easy to see why insiders are buying.

Chimera Investment Corporation (CIM) is trading around $3.03. Chimera is a real estate investment trust and is based in New York. These shares have traded in a range between $3.11 to $4.36 in the last 52 weeks. The 50 day moving average is $3.46 and the 200 day moving average is $3.71. CIM is estimated to earn about 60 cents per share in 2011. Insiders have been buying, you can see that here. CIM pays a solid dividend of 52 cents per share which is equivalent to a 15.8% yield. The book value is stated at $3.45.

MFA Financial, Inc., (MFA) is trading around $7.15. MFA is a mortgage real estate investment trust company based in New York.These shares have traded in a range between $7.10 to $8.64 in the last 52 weeks. The 50 day moving average is $7.82 and the 200 day moving average is $7.66. MFA is estimated to earn about $1.04 per share in 2011. The book value is stated at $8.13 so these shares are trading at a discount to book. The dividend is very generous at $1 per share which is equivalent to a 12.8% yield.

iShares FTSE NAREIT Mortgage ETF (REM) is trading around $13.54. REM is a mortgage real estate investment trust ETF which has holdings that include the other REIT stocks mentioned here. This gives investors a way to invest in this sector with some diversification These shares have traded in a range between $13.98 to $16.07 in the last 52 weeks. The 50 day moving average is $14.67 and the 200 day moving average is $14.63. The dividend is about $1 per share annually which is equivalent to about a 10% yield.

The data is sourced from Yahoo Finance and Stockcharts.com. The information and data is believed to be accurate, but no guarantees or representations are made. Rougemont is not a registered investment advisor and does not provide specific investment advice. The information contained herein is for informational purposes.

Disclosure: I am long CIM, REM.