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REITs continue to attract a lot of attention due to the high yields many of them are paying in comparison to the miserable rates offered by treasuries. The added uncertainty in the markets only makes investing in companies that offer high yields even more attractive. We put together a list of some of the highest yielding REITs in the market today. All the listed REITs have very attractive price/book ratios of 1.02 or lower; 3 REITs on the list are trading below 1 and one is trading exactly at 1. We also only selected REITs with dividends in excess of 14%.

Stock

Dividend

Market Cap

Forward PE

Price/ Book

Quarterly revenue growth

Operating margins

Revenue

Operating

Cash flow

TWO

17.00%

1.35B

6.8

1.01

530%

86.5%

131M

98.7M

AGNC

19.30%

5.5B

4.75

1.02

320%

93.2%

757M

509M

ARR

20.5%

594M

5.65

1.02

-----

136.47%

-18.98M

77.12M

RSO

18.10%

426M

13

0.96

29.20%

56%

66M

15M

IVR

25.5%

1.65B

4.62

0.85

197.6%

91%

275M

231M

CYS

17.4%

1.08B

10

1.00

293.3%

87%

182M

-634B

MFA

14.10%

2.5B

6.5

0.92

10.50%

90.88%

388M

304M

B= billion M= million

Two Harbors Investment Corp (TWO)

It has enterprise value of $6.49 billion, a price/sales value of 10.03, a revenue growth (year over year) of 530%, a quarterly earning's growth rate of (yoy) 452%, a total return of 35.8% for the past three years, and has been paying dividends since 2009. Net income has jumped nicely for the past 2 years; in 2009, it stood at -$8.7 million and in 2010 it surged dramatically to $35.7 million. For 2011, net income generated so far is $76 million.

Insiders have purchased over 120,000 shares from August-November 2011 at a cost of $.8.95-$9.70. The full list of insider purchases can be accessed here .

  • ROE 11.94%
  • Quarterly earnings growth (yoy) 530%
  • Total debt $7.35 billion
  • 200-day moving average $9.63
  • Book value $9.30
  • Dividend yield 5-year Average N/A
  • Dividend rate $1.60
  • Payout ratio 101%
  • Dividend growth rate 3 year average 0.00%
  • Consecutive dividend increases 0 years
  • Paying dividends since 2009
  • Total return last 3 years 41.29%
  • Total return last 5 years N/A

American Capital Agency Corp (AGNC)

It has enterprise value of $43.9 billion, a price/sales value of 7.00, a revenue growth (yoy) of 322%, a quarterly earning's growth rate of (yoy) 317%, a total return of 123 for the past three years, and has been paying dividends since 2008. American Capital Agency Corp is one of the highest yielding agencies REITS out there.

Net income for the past three years is as follows; for 2008, it was $35 million, in 2009 it came in at $118 million and in 2010 it soared to $288 million.

Insider has purchased 8,500 shares in August at $27.97-29.04 a share. The full list of insider transactions can be accessed here.

  • ROE 23.9%
  • Quarterly earnings growth (yoy) 317%
  • Total debt $40.16 billion
  • 200-day moving average $28.60
  • Book value $26.91
  • Dividend yield 5-year Average N/A
  • Dividend rate $ 5.60
  • Pay out ratio 78%
  • Dividend growth rate 3 year average 97%
  • Consecutive dividend increases 2 years
  • Paying dividends since 2008
  • Total return last 3 years 135%
  • Total return last 5 years N/A

ARMOUR Residential REIT Inc. (ARR)

It has a quarterly revenue growth rate (yoy) of 12,484%, a ROE of -8.13%, and total three year return of 13%. Net income surged from negative $1.1 million dollars in 2009 to a massive gain of $6.5 million dollars in 2010.

Gross profits have increased from $369,000 in 2009 to $7.8 million in 2010. Net income also surged nicely from negative $1.14 million in 2009 to $6.53 million in 2010. For 2011, net income has turned negative and stands at -$18 million.

The short percentage of float is a huge 30.30%, which makes ARMOUR Residential REIT Inc a strong candidate for a short squeeze.

ARMOUR Residential REIT Inc. has been named as a Top 10 Real Estate Investment Trust, according to Dividend Channel. The report noted that among REITs, ARR shares displayed both attractive valuation metrics and strong profitability metrics. The report also cited the strong monthly dividend history at ARMOUR Residential REIT Inc., and favorable long-term multi-year growth rates in key fundamental data points.

Insider transactions

Insider purchased over 200,000 shares in the month of October at $5.50-$6.29 a share. The full list of insider transactions can be accessed here.

Potential negatives

ARR has filed for a secondary offering at$6.80 per share, and we feel that this could be dilutive to share holders. Furthermore, the technical pattern looks terrible, and we would wait until ARR tests the 6.50 ranges. If it pulls back to 6.50 and holds, then it might make sense to open a position. A failure to hold at 6.50 will result in a test of the lows. Ideally, it should re test its lows on low volume. The best entry point would be to purchase shares in the 5.30-5.50 ranges and place a stop at 4.70.

  • ROE -8.19%
  • Quarterly revenue growth rate (yoy) 12,484.26%
  • Total debt 5.32 billion
  • 200-day moving average $7.22
  • Book value $6.78
  • Dividend rate $1.32
  • Consecutive dividend increases 0 years
  • Paying dividends since 2010
  • Total return last 3 years 13%

Resource Capital Corp (RSO)

Resource Capital Corp has an enterprise value of $2.054 Billion, a price/sales value of 6.2, a quarterly earning's growth rate of 6.3%, a ROE of 7.3%, a total three year return of 98% and has been paying dividends since 2006.

Net income for the past three years is as follows; in 2008, it was -$3. Million, in 2009 it tripled to $6.3 million and in 2010, it tripled again to $19 million. For 2011, it stands at $37.2 million.

Insiders have purchased over 56,000 shares since March at $.478-$7.13 a share. The full list of insider transactions can be accessed here.

As long as it does not close below 5.00 on a weekly basis the outlook will remain bullish. Currently, it is projecting a test of the 6.50-6.60 ranges. A weekly close above 6 could propel it as high as 7.20-7.50 before a correction takes hold. A good point of entry would be in the 5.20-5.40 ranges.

  • ROE 7.32%
  • Quarterly earnings growth (yoy) 6.3%
  • Total debt $1.7 billion
  • 200-day moving average $ 5.61
  • Book value $5.76
  • Dividend yield 5-year Average 22.5
  • Dividend rate $1.00
  • Payout ratio 312
  • Dividend growth rate 5 year average 2.13
  • Consecutive dividend increases 0 years
  • Paying dividends since 2006
  • Total return last 3 years 98%
  • Total return last 5 years -26

Invesco Mortgage Capital Inc (IVR)

Invesco Mortgage Capital an enterprise value of $14.2 billion, a price/sales value of 5.87, a quarterly earnings growth rate of 209%, a quarterly revenue growth rate of 197%, a ROE of 20.25% and has been paying dividends since 2009.

Net income for the past two years is as follows; in 2009, it was $15 million and in 2010 it soared to $98 million. For 2011, net income so far stands at $206 million.

Insiders have purchased roughly 40,000 shares since August at $14.80-$19.40 a share. The full list of insider transactions can be accessed here. The short percentage of float stands at 13.40% which makes IVR a pretty good candidate for a short squeeze.

Potential negatives

Invesco Mortgage Capital Inc owns quite a bit of Non agency paper. As mortgage delinquencies are rising this could be a problem going forward. FBR Capital downgraded IVR, and the shares took a beating on the 8th of December. The chart looks weak and there is a good chance that it could test its lows before a bottom takes hold. I would wait for a test of the 12.40-12.80 ranges before opening a position.

  • ROE 20.25%
  • Return on assets 2.82%
  • Quarterly earnings growth (yoy) 209%
  • Total debt $12.57 billion
  • 200-day moving average $17.40
  • Book value $16.45
  • Dividend yield 5-year Average N/A
  • Payout ratio 97%
  • Dividend rate $3.74
  • Dividend growth rate 3 year average N/A
  • Consecutive dividend increases 0 years
  • Paying dividends since 2009
  • Total return last 3 years N/A
  • Total return last 5 years N/A

CYS Investments, Inc. (CYS)

CYS Investments, has an enterprise value of $8.67 billion, a price/sales value of 5.88, a ROE of 28%, a stunning quarterly earnings growth rate of 4,945%, a quarterly revenue growth rate of 293%, and has been paying dividends since 2009. Seven brokerage firms have assigned CYS Investments, Inc with a buy or an outperform rating.

Net income for the past 3 years is as follows; in 2008 it was $34 million, in 2009 it stood at $63.8 million and in 2010 it dropped to $22.3 million. For 2011 net income so far has surged to $247 million.

CYS Investments, Inc. has been named as a Top 10 Real Estate Investment Trust, according to Dividend Channel. The report noted that among REITs, CYS shares displayed both attractive valuation metrics and strong profitability metrics. The report also cited the strong quarterly dividend history at CYS Investments, Inc., and favorable long-term multi-year growth rates in key fundamental data points.

Potential negatives

Insiders have sold roughly 253,000 shares from November to December at $13.00-$13.20 a share. To access the full list of insider transactions click here. Operating Cash flow has turned negative and currently stands at -$6.3 billion.

  • ROE 28.22%
  • Return on assets 3.23%
  • Quarterly earnings growth (yoy) 4,945.60%
  • Total debt 7.64 billion
  • 200-day moving average $12.81
  • Book value $12.98
  • Dividend yield 5 year Average N/A
  • Dividend rate $2.35
  • Payout ratio 181%
  • Dividend growth rate 5-year average N/A
  • Consecutive dividend increases 0 years
  • Paying dividends since 2009
  • Total return last 3 years N/A
  • Total return last 5 years N/A

MFA Financial, Inc. (MFA)

MFA Financial, Inc has an enterprise value of $11.04 billion and price/sales value of 7.16. MFA Financial, Inc is trading slightly below book value, has a quarterly earnings growth rate of 8.4%, a quarterly revenue growth rate of 10.5%, a total three year return of 79%, a dividend rate of $0.97 and has been paying dividends since 1998.

Net income has increased nicely for the past three years; in 2008, net income came in at $45 million, in 2009 it jumped to $268 million and in 2010 it inched up a little higher to $269 million. For 2011, net income so far is $245 million.

MFA declared a regular cash dividend of 25 cents per share for the 4th quarter and a special dividend of $0.02 cents per share. The ex dividend date is Dec 28, 2011, and the dividends will be paid on Jan 31, 2012.

Insider action

Insiders purchased roughly 63,000 shares during the month of August at 6.79-$7.23 a share. The full list of insider transactions can be accessed here.

  • ROE 12.4%
  • Quarterly earnings growth (yoy) 8.4%
  • Total debt $9.1 billion
  • 200-day moving average $7.21
  • Book value $7.43
  • Dividend yield 5-year Average 11.7
  • Dividend rate $.0.97
  • Payout ratio 104%
  • Dividend growth rate 5 year average 43.9%
  • Consecutive dividend increases 0 years
  • Paying dividends since 1998
  • Total return last 3 years 79%
  • Total return last 5 years 44%

Conclusion

REITs earn money on the spread between the borrowing cost and the investment yield; the wider the spread he larger their profits and vice versa. Once the spread starts to narrow it starts to eat away their profits and so REITs will not fare well in a rising rate environment. As the Feds have promised to do nothing till 2013, theoretically REITs should fare well. We say theoretically because investors can drive yields up as they have done so in Europe. Once they start to lose faith in a government's ability to pay its debt, investors usually start to demand higher rates of return. While the focus for now is on Europe, the U.S. is not in much better shape; our Debt/GDP ratio is now in excess of 100%. Investors should only put a percentage of their funds into REITs and remember that dividends earned from REITs are taxed as ordinary income. We would not hold any of these investments for the long term and would most likely advice investors to start scaling out of them prior to 2013. Our favourite two plays out of the seven REITs mentioned in this article are AGNC and TWO. If we had to pick one only it would probably be AGNC. Investors looking for more conservative investments will find our latest Dividend champions article of interest; only stocks with stellar records of consecutively increasing their dividend payments for 50 years or more were considered. Investors with a slightly higher tolerance for risk might find 5 Contrarian Speculative Stock Plays to be of interest.

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

Disclaimer: This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is very important that you check the finer details in each of the mentioned plays before investing any capital in them. Some investors are happy with taking enormous amounts of risks, while others are bothered by the slightest degree risk; it is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies-let the buyer beware.

Source: The Highest Paying REITs With Yields As High As 25%