Find Upside Potential In mREIT Stocks

Things are looking up for mortgage real estate investment trust stocks. Some investors were concerned the Obama administration would propose a plan that would allow homeowners with no equity to refinance at lower rates, as this would reduce returns for investors. Many underwater homeowners are stuck paying higher interest rates because they no longer have the equity and/or credit to qualify for a traditional refinance with a bank.

Even if the Obama administration were to formally make such a proposal, it would probably cost way too much and be blocked in the gridlock of Congress anyhow. A new Barrons.com article details the reasons for a sudden shift in the outlook for the REIT sector by stating "The feasibility of a massive refi plan is essentially zero. We’re going to look back 12 months from now and say, I can’t believe the market gods gave us such a great entry point,” Troy Gayeski, who runs SkyBridge Capital’s discretionary fund-of-funds and institutional separate accounts, told Bloomberg."

The Federal Reserve plans to keep interest rates at very low levels (near zero) for about two more years. Investors have a chance to lock in very high yields with these stocks now and could receive not only market-beating dividends, but capital gains as well. Also, a number of shorts in these stocks could help fuel the rally. Here are a number of mREIT stocks that investors might wish they had bought at current levels:

Chimera Investment Corporation (CIM) is an REIT that invests in residential mortgage-backed securities, and both commercial and residential mortgage loans. With a yield of about 18%, and a share price below book value, this looks like a great buying opportunity.

Here are some key points for CIM:

• Current share price: $2.85
• The-52 week range is $2.62 to $4.36
• Earnings estimates for 2011: 60 cents per share
• Earnings estimates for 2012: 59 cents per share
• Annual dividend: 52 cents per share which yields 18.3%
• Book value: $3.35 per share

Annaly Capital Management, Inc., (NLY) is an mREIT company, based in New York. Annaly pays a dividend of about $2.60 annually, which is equivalent to a yield of around 14.6%.

Here are some key points for NLY:

• Current share price: $17.90
• The 52-week range is $14.05 to $18.79.
• Earnings estimates for 2011: $2.53 per share
• Earnings estimates for 2012: $2.38 per share
• Annual dividend: $2.60 per share which yields 14.6%
• Book value: $16.55 per share

American Capital Agency (AGNC) is an REIT that invests in residential mortgage-backed securities, and both commercial and residential mortgage loans.

Here are some key points for AGNC:

• Current share price: $29.11
• The 52-week range is $22.03 to $30.76
• Earnings estimates for 2011: $4.02
• Earnings estimates for 2012: $5.47
• Annual dividend: $5.60 per share which yields about 19.7%
• Book value: $26.76 per share

Hatteras Financial Corp (HTS) is an mREIT company based in North Carolina. HTS trades at a discount to book value. Hatteras just declared a quarterly dividend of $1.00 per common share for the third quarter of 2011. The dividend will be paid on October 21, 2011, to shareholders of record on September 23, 2011.

Here are some key points for HTS

• Current share price: $26.77
• The 52-week range is $23.80 to $31.98.
• Earnings estimates for 2011: $4.20 per share
• Earnings estimates for 2012: $4.23 per share
• Annual dividend: $4 per share which yields 15.2%
• Book value: $26.72 per share

MFA Financial (MFA) is an REIT that invests in residential mortgage-backed securities. MFA trades at a discount of about 10% to book value.

Here are some key points for MFA:

• Current share price: $7.09
• The 52-week range is $6.71 to $8.64
• Earnings estimates for 2011: $1.01 per share
• Earnings estimates for 2012: $1.06 per share
• Annual dividend: $1 per share which yields 14.3%
• Book value: $7.75 per share

Armour Residential REIT (ARR) is an REIT that invests in residential mortgage-backed securities. ARR trades for a premium of about 2% to book value, but offers a very high yield at nearly 20%.

Here are some key points for ARR:

• Current share price: $7.30
• The 52-week range is $6.80 to $8.33
• Earnings estimates for 2011: $1.01 per share
• Earnings estimates for 2012: $1.06 per share
• Annual dividend: $1.44 per share which yields 19.4%
• Book value: $7.14 per share

iShares FTSE NAREIT Mortgage REIT (REM) is an exchange-trade fund that invests in a number of mortgage real estate investment trusts. This allows investors to have diversification across a number of holdings in this fund, which include: Annaly Capital, American Capital Agency, Chimera Investment, MFA Financial and others. Because of the diversification, this is a lower-risk way to play this sector.

Here are some key points for REM:

• Current share price: $13.42
• The 52-week range is $12.54 to $16.07
• Earnings estimates for 2011: n/a
• Earnings estimates for 2012: n/a
• Annual dividend: about $1.50 per share, which yields over 10%

Disclosure: I am long CIM.

Disclaimer: Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.