6 High-Yield REITs to Consider Now

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 |  Includes: AGNC, ARR, CLNY, FMCC, FNMA, HPT, NLY, OHI
by: Investment Underground

Investors seeking income should consider investing in Real Estate Investment Trusts. By law, they are required to pay 90% of their REIT net income to shareholders by way of dividends. We looked at six stocks income investors might like to consider:

Armour Residential REIT Inc (NYSE:ARR): The company invests in adjustable- and fixed-rate mortgage securities that are backed by government sponsored bodies such as the Federal National Mortgage Association (OTCQB:FNMA), and the Federal Home Loan Mortgage Corporation (OTCQB:FMCC).

Shares are trading at $7.58, in the middle of their 52-week trading range of $7.80 to $8.33. At the current market price, the company is capitalized at $373.39 million. Earnings per share for the last fiscal year were $1.25, placing the shares on a price to earnings ratio of 6.07. It paid a dividend of $1.44 last year (a yield of 20.50%) which was covered 0.87 times by its earnings.

Earnings are expected to remain at or around the current levels over the next couple of years, hitting $1.37 this year, and then falling to $1.28 the following year. Two secondary offerings were made in the quarter, which is the reason that the pay-out exceeded 100%. Dividends are likely to return to 90% of income, and the company has announced that it sees the dividend remaining at $0.12 per share per month. Not exciting, but steady.

American Capital Agency Corp (NASDAQ:AGNC): This REIT invests its funds mostly in short-term borrowings structured as repurchase agreements.

Shares are trading at $29.78 at the time of writing, toward the top end of their 52-week trading range of $22.03 to $30.76. At the current market price, the company is capitalized at $5.32 billion. Earnings per share for the last fiscal year were $6.54, placing the shares on a price to earnings ratio of 4.56. It paid a dividend of $5.60 last year (a yield of 21%).

With revenue expected to double during the next two (to $176.98 billion), dividends should grow accordingly. These shares look underpriced going forward, an could offer an interesting proposition for those investors who understand the risks of collateralized mortgage obligations.

Annaly Capital Management Inc (NYSE:NLY): Annaly Capital Management invests in mortgage-backed securities, and collateralized mortgage obligations.

Shares are trading at $17.86 at the time of writing, in the middle of their 52-week trading range of $14.05 to $18.79. At the current market price, the company is capitalized at $14.84billion. Earnings per share for the last fiscal year were $2.69, placing the shares on a price to earnings ratio of 6.64. It paid a dividend of $2.60 last year (a yield of 15.90%) which was covered 1.03 times by its earnings.

These earnings will ease through to 2012, hitting $2.62 this year, and then easing to $2.54 the following year. However, the dividend is expected to be safe through this downturn in fortunes, even if it can’t be increased.

This is a good stock for income seeking investors to buy. The dividend yield should remain around 16%, and capital should remain intact. However, those that don’t have a good understanding of collateralized mortgage debts might want to look elsewhere.

Hospitality Properties Trust Co. (NYSE:HPT): This REIT owns hotels and travel centers, which are operated by associated hospitality companies. They have to date invested in 288 hotels and 185 travel centers across the United States, Puerto Rico, and Canada.

Shares are trading at $21.50 at the time of writing, as against their 52-week trading range of $19.00 to $25.94. At the current market price, the company is capitalized at $2.65 billion. Earnings per share for the last fiscal year were $0.03, placing the shares on a price to earnings ratio of 716.67. It paid a dividend of $2.90 last year (a yield of 8.60%) which was covered 0.70 times by its earnings.

These earnings per share have been signaled to increase to $3.39 this year, and then $3.26 the year after, as investments come to fruition and start to pay back. This means that under the REIT dividend rules, the dividend should rise to over $3.00. Some return to normality in the price to earnings ratio will take place because of this, and analysts expect the shares to reach around $29 over the next 12 months.

Omega Healthcare Investors Inc (NYSE:OHI): This REIT focuses on providing financing and capital to the long-term healthcare industry. It concentrates on owning or holding mortgages on assisted living facilities, specialty hospitals, and skilled nursing facilities.

Shares are trading at $16.33 at the time of writing, as against their 52-week trading range of $14.40 to $24.46. At the current market price, the company is capitalized at $1.68 billion. Earnings per share for the last fiscal year were $0.24, placing the shares on a price to earnings ratio of 66.93. It paid a dividend of $1.60 last year (a yield of 11.10%).

These earnings per share have been signaled to increase to $1.76 this year, and then $1.92 the year after, as the pace of mortgage repayments increase. Dividends, therefore, will likely rise strongly. Long term healthcare is a growing sector of the economy as people live longer, and the company is well placed to take advantage of this. Expect earnings and dividends to grow. This is a good investment for income and growth.

Colony Financial Investors Inc (NYSE:CLNY): An REIT specializing in managing a portfolio of real estate debt investments, primarily focusing on commercial mortgage loans, which may be non-performing or sub-performing. It operates in nine countries.

Shares are trading at $16.09 at the time of writing, toward the bottom end of their 52-week trading range of $14.77 to $21.45. At the current market price, the company is capitalized at $529.51 million. Earnings per share for the last fiscal year were $1.37, placing the shares on a price to earnings ratio of 11.71 It paid a dividend of $1.28 last year (a yield of 8.40%) which was covered 1.07 times by its earnings.

These earnings are expected to rise through the next couple of years, hitting $1.52 this year, and then easing to $2.03 the following year as revenue increases to $85.72 million from around $50 million. If this rate of growth transpires, it will cement the dividend at levels up to an absolute value of around $1.80. With growth like this, the shares should perhaps be trading higher. However, mezzanine loans and sub-performing loans are still remembered to be the root cause of the financial crisis of 2008. Trust share are perhaps for the braver investor.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.