The fall of securitized mortgages caused a major financial crisis just a few years ago. Their ballistic rise was fueled by the low interest rate environment that followed the burst of the internet bubble and lax mortgage practices by a historically strict group. The mortgage backed security (MBS) market collapse brought down almost everything else, including the interest rate. Now, the companies that hold these securitized mortgages occupy the highest yielding corner of the market.
There are many mREITs that manage portfolios of these MBSs. These companies buy the mortgage paper as an investment and/or in order to re-securitize and sell to another buyer. Several mREITS, such as NLY and AGNC, hold portfolios exclusively of agency-backed paper, which carry an implied government backing.
The following list is of 7 mREITs that currently yield over 10% with a market capitalization of over $1 billion and reasonably high trading volumes and market valuations. I have provided their current yield as well as their 2011-to-date and 1-month performances.
American Capital Agency Corp. (NASDAQ:AGNC)
- Current Yield: 18.81%
- 2011-to-date performance: -0.45%
- 1-month performance: -3.64%
Annaly Capital Management, Inc (NYSE:NLY)
- Current Yield: 14.56%
- 2011-to-date performance: -0.73%
- 1-month performance: -0.95%
Hatteras Financial Corp (NYSE:HTS)
- Current Yield: 14.51%
- 2011-to-date performance: -10.43%
- 1-month performance: -6%
Chimera Investment Corporation (NYSE:CIM)
- Current Yield: 16.46%
- 2011-to-date performance: -27.01%
- 1-month performance: -10.17%
Cypress Sharpridge Investments (NYSE:CYS)
- Current Yield: 18.32%
- 2011-to-date performance: -0.08%
- 1-month performance: -1.68%
Invesco Mortgage Capital, Inc. (NYSE:IVR)
- Current Yield: 20.08%
- 2011-to-date performance: -22.07
- 1-month performance: -19.03%
MFA Financial (NYSE:MFA)
- Current Yield: 13.28%
- 2011-to-date performance: -9.92%
- 1-month performance: -6.61%
2010 was a fairly stable year for the group, though they've since become more volatile. These mREITs now offer some of the highest yields one can find in the open market. Those with exposure to non-agency paper have generally performed far worse than agency mREITs, as non-agency paper valuations began to drop in 2011. Several agency-only mREITS are essentially flat within 2011, not counting their dividends.
See the 2011-to-date chart below:
click on image to enlarge
Several yield hungry investors might be salivating at the concept of payouts that are so high. Nonetheless, many currently fear a second fall in real estate is coming and that it will hurt the values of these companies. Moreover, interest rate increases could prevent highly leveraged mREITs from maintaining such high dividends by reducing their spreads.
One should also note that these mREIT dividends will be taxed as regular income, and not at the dividend rate, making them considerably superior performing income products when held in tax-free accounts.
Disclaimer: This article is intended to be informative and should not be construed as personalized advice as it does not take into account your specific situation or objectives.