7 High-Yield mREITS: Performance And Yield Review

 |  Includes: AGNC, CIM, CMO, CYS, HTS, IVR, NLY
by: Zvi Bar

Mortgage-backed securities caused a major financial crisis three years ago. The low-rate environment that followed the bursting of the Internet bubble, combined with lax mortgage practices by a historically strict group, fueled the ballistic rise of MBSs. Their consequent collapse brought down almost everything else, including interest rates. Now, the companies that hold these securitized mortgages occupy the highest yielding corner of the market U.S. equity markets.

There are many REITs that manage portfolios of these securitized mortgages. These mREITs have recently been hit by a series of fears beyond the concern that foreclosures will continue for the coming years and that housing prices may continue to drop. These businesses were especially sensitive to the debt-ceiling crisis within July. More recently, new regulatory risks have emerged, including those dealing with their tax status and leverage usage.

The following is a review of the short-term performance of 7 high-yielding mREITs that have reasonably large trading volumes. I have provided their present yields, as well as their 5-day, 1-month and 2011-to-date performances.

American Capital Agency (NASDAQ:AGNC)

  • Yield: 20.6%

  • 5-day: -7%

  • 1-month: -5.08%

  • 2011-to-date: -4.41%

Annaly Capital Management (NYSE:NLY)

  • Yield: 14.8%

  • 5-day: -2.39%

  • 1-month: -4.20%

  • 2011-to-date: -2.33%

Capstead Mortgage Corporation (NYSE:CMO)

  • Yield: 14.2%

  • 5-day: -6.71%

  • 1-month: -6.65%

  • 2011-to-date: -2.94%

Chimera Investment Management (NYSE:CIM)

  • Yield: 17.9%

  • 5-day: -0.67%

  • 1-month: -4.17%

  • 2011-to-date: -27.48%

Cypress Sharpridge Investments (NYSE:CYS)

  • Yield: 18%

  • 5-day: -8.83%

  • 1-month: -8.23%

  • 2011-to-date: -4.11%

Hatteras Financial (NYSE:HTS)

  • Yield: 15.7%

  • 5-day: -6.86%

  • 1-month: -7.33%

  • 2011-to-date: -14.8%

Invesco Mortgage Capital (NYSE:IVR)

  • Yield: 20.7%

  • 5-day: -11.11%

  • 1-month: -17.39%

  • 2011-to-date: -33.42%

Recent weakness within mREITs -- due to fear over regulatory changes and rising fears over potential risks associated with interest rates eventually rising -- has brought down even the agency-only mREITs. Currently, all of the above-mentioned mREITs’ shares are down within 2011. Most agency mREITs are now slightly negative, before counting dividends. Conversely, most of the non-agency and/or hybrid mREITs are down a sigfnicant amount within 2011, and in many instances down about fifty percent more than their sizable dividend payouts. See the 2011-to-date chart, below (click chart to enlarge):

Click to enlarge

These mREITs offer significant yield and some real and understandable property-related risks. Exposure to either agency or non-agency mREITs should be limited to a reasonable percentage of a portfolio. Additionally, REIT dividends are taxed as regular income, and not at the dividend rate, making them considerably superior-performing products when held in tax-free accounts.

Disclosure: I am long CIM, NLY.

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.