In this low-interest-rate environment, many investors are looking for higher-yielding equities to include in their fixed income and greater portfolios. Investors seeking high dividend yields have found a haven in REITs. No matter what type of investor you may be, stocks that pay a dividend should make up at least part of your portfolio. Either to offset riskier assets or for diversification purposes, a company that pays out a stable dividend should be part of any worthwhile investment strategy.
We shall take a look at five REITs and consider how sustainable their dividends really are. The five on my radar are Retail Opportunity Investments Corporation (ROIC), American Capital Agency Corp (AGNC), Sabra Health Care REIT, Inc. (SBRA.PK), Annaly Capital Management (NLY) and Capstead Mortgage Corporation (CMO).
Retail Opportunity Investments Corporation engages in investing in, acquiring, owning, and managing commercial real estate in the United States. It is trading at trailing twelve month price to earnings ratio of 41.86, an excellent price to book ratio of 1.30. ROIC return on equity is low at 3.09% and operating margin is at 4.88%. Although the company's valuations appear high, this is at a time of trough earnings for the REIT industry. This figure is in line with many of its competitors.
The dividend yield of ROIC is low at 4.10% compared to its competitors, but considering the staggering pace ROIC has increased dividends in the past, similar growth is expected in future. ROIC has one of the best balance sheets, asset bases, and management teams in the REIT industry. ROIC strategically targets retail shopping centers with large, financially stable anchor stores. These locations have proven better able to ride out rough markets.
ROIC is still in early stages compared to its competitors and still adding assets, thus earnings are still lower than competitors. The market seemed to price in little to no future growth in earnings, despite to company continuing to purchase unique properties at very attractive prices. But we have seen in the past that it doesn't require time to change perception, and once the earnings from these new properties flow through, investors will be handsomely rewarded. I am positive on ROIC and expect good returns in 2012.
American Capital Agency Corp invests in residential mortgage pass-through securities and collateralized mortgage obligations for which the principal and interest payments are guaranteed by a U.S. government agency or U.S. government-sponsored entity. It is trading at excellent trailing twelve month price to earnings ratio of 4.64, an excellent price to book ratio of 1.05. AGNC return on equity is good at 23.91% and operating margins is at impressive 92.59%. These figures look extremely attractive.
The dividend yield of ROIC is staggering 19.80% and currently capitalized at $6.3 billion. Although leverage is a concern for AGNC, its EBITD margins are comfortable at 62.52%. Unlike agency mortgage REIT peers, AGNC has maintained its $1.40 per quarter dividend, and with huge cash pile it is sure that it will continue growth and high dividend payout. As we noted last month, sustainability is paramount at AGNC and the payout ratio at that time, at 0.78, makes AGNC worth considering.
Sabra Health Care REIT Inc. operates as a real estate investment trust in the United States. The company, through its subsidiaries, owns and invests in real estate properties for the healthcare industry. It is trading at excellent forward twelve month price to earnings ratio of 8.50, an excellent price to book ratio of 1.45. SBRA is trading at price to earnings growth ratio of 2.1% and operating margins is at 52.39%. These figures look comforting.
The dividend yield of SBRA is good at 9.90% and is currently capitalized at $ 491.82 million. SBRA is down year on year and touched a 52 week low of $7.86, but the uptrend seems to have begun, and it has gained more than 70% in the past three months, and currently trades at $13.34. Investors can return to SBRA in 2012 with its current momentum in price and dividend yield.
Annaly Capital Management, a real estate investment trust, engages in the ownership, management, and financing of a portfolio of investment securities. It has a unique business model, and the company invests primarily in mortgage pass-through certificates, collateralized mortgage obligations, agency callable debentures, and other mortgage-backed securities. It is trading at excellent forward twelve month price to earnings ratio of 7.19, an excellent price to book ratio of 1.01. NLY return on equity is low at 8.73% and operating margins is at impressive 84.07%. The dividend yield of ROIC is high at 13.90% and currently capitalized at $15.91 billion.
Among competitors, NLY is generally acknowledged as best of breed. It has the second largest market cap and has been paying solid dividends to investors since its founding in 1997. NLY can be a good candidate for retirement strategy portfolio. In a diversified and balanced portfolio, NLY offers a wonderful dividend, a conservative management approach, and an unequaled track record.
Capstead Mortgage Corporation (CMO): CMO is a real estate investment trust that invests in a leveraged portfolio of residential mortgage pass-through securities consisting primarily of adjustable-rate mortgage securities issued and guaranteed by government-sponsored enterprises. It is trading at excellent forward twelve month price to earnings ratio of 7.99, an excellent price to book ratio of 1.01. CMO return on equity is 13.39% and operating margins is at impressive 90.49%.
The dividend yield of CMO is high at 13.50%, with five year average dividend yield of 10%, and it's currently capitalized at $1.08 billion. CMO has a beta of 0.45 and debt to capital of 9.4%, which is a good indicator of value in the company. CMO represent a good value and investment opportunity. CMO also has promising growth prospects, as it is priced at a price to earnings growth ratio of 0.13, and any economic recovery in the sector will push it upwards.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.