Agency Mortgage REITs provide yield hungry investors access to strong dividend yields. These securities typically perform well in low interest rate environments with steep yield curves. We think they provide investors a hedge against heavy cash and short-term bond portfolios in the event interest rates stay low for an exceptionally long period of time.
Mortgage REITs take advantage of a tax status to invest in mortgage related real estate assets. REITs can invest in both physical real estate assets and real-estate related securities like mortgage backed securities (MBS). REITs electing the take advantage of the tax status must distribute 90% of taxable income as dividends. The primary advantage of using the REIT tax designation is that these companies do not pay state or federal corporate taxes on dividends paid to investors. Instead, the taxes are paid by the REIT equity holders (investors).
Tenure and Diversification
- Anworth Mortgage Asset Corp. (NYSE:ANH)
- Capstead Mortgage Corp. (NYSE:CMO)
- Hatteras Financial Corp. (NYSE:HTS)