Real estate investment trusts, or REITs, have been a favorite investment tool for many people due to their dividend power. REITs have some of the best yields because they must pay at least 90% of their taxable income in the form of dividends. These returns on investment, along with share prices that can climb as well, encourage many to speculate. The potential will lead many to wonder what REITs like Annaly Capital Management Inc (NYSE:NLY), Chimera Investment Corporation (NYSE:CIM), Apollo Investment Corporation (NASDAQ:AINV), ARMOUR Residential REIT Inc (NYSE:ARR), MFA Financial Inc (NYSE:MFA) and American Capital Agency Corp (NASDAQ:AGNC) will yield in 2012.
Annaly Capital Management Inc
Headquartered in New York, Annaly Capital Management is one of the largest real estate investment trusts in the country. With a market cap in excess of $6.5 billion and a massive quarterly earnings growth of nearly 320%, this company is one of the heavyweights in the field. With a current share price of just under $17, this stock offers an impressive $2.28 annual dividend and a hefty 13.6% yield.
Not only is Annaly paying a great dividend, the stock looks ready to climb in 2012 as well. The one-year target estimate for Annaly is $17.45, but the stock has already climbed above its 50-day moving average and appears ready to challenge its 200-day average, which is currently sitting near $17.25. If the price can push past that level, it may be able to challenge its 52-week high of $18.79. Investors should look at Annaly Capital as one of the first REIT holdings they pick up for big 2012 gains.
Chimera Investment Corporation
In spite of being a dividend giant, Chimera Investment Corporation is considered to be a riskier option than some of its competitors. While most REITs deal exclusively in mortgages backed by the United States government, Chimera does not. This flexibility offers the $3.1 billion company some flexibility in the properties it holds, but it also increases the risk.
Although Chimera Investment is currently trading for about $3 per share, it hands out an excellent dividend of $0.44. This amount correlates to a yield of over 14%. After double-digit drops in both quarterly revenue (38%) and earnings (43%), it is hard to get too excited about Chimera in 2012. This business sector is so competitive, and its soft numbers suggest that other REITs could be better investments at this time.
Apollo Investment Corporation
Apollo Investment Corp is another company that can be difficult to read. Trading at just over $7.50 per share, the company pays a very nice dividend of $1.12 for an impressive yield of 15%. Factoring in share price increases and dividends, investors can effectively double their money every six years with Apollo.
Not only does the company pay a very nice dividend, but investors can look for potential share price gains as well in 2012. The stock's one-year target estimate is $9.25, an increase of more than 20% over the current price. There are some concerns, including the company's $1.2 billion of total debt and its sluggish revenue growth (2.7%), but Apollo Investment Corporation is still a very enticing holding since it offers gains in both price and dividend.
Armour Residential REIT Inc
Another non-agency REIT, Armour Residential REIT Inc is a lot like Chimera Investment Corporation in that it doesn't deal exclusively with government guaranteed financing. This means more exposure, but Armour offsets that risk by trading at a discount to agency mREITs, a move that can lead to improved rewards for the company. Currently trading around $7.25 per share, the company offers an annual dividend of $1.32, giving it a huge yield of 18.4%.
While its low beta of 0.28 and its five-year PEG of 2.65 suggest it can sustain growth, an 8% drop in return on equity and a -0.61 earnings per share raises flags for investors. In spite of this incredible dividend, declining earnings make it seem unlikely that the company can continue such a strong payout. For this reason, it may be best to hold off on any purchases of Armour Residential REIT until the company can show an upswing in earnings.
MFA Financial Inc
MFA Financial is yet another non-agency REIT, operating in the riskier non-guaranteed mortgage arena. Although there is more exposure, this company seems to have more upside than Armour or Chimera, thanks in part to its anticipated gains in share price and some recent bullish movement. Trading near $7.25 per share, MFA Financial pays a yield of 13.8%, with a dividend of $1.
With a price to earnings ratio of 7.95, a very good beta of 0.17 and a 10.5% increase in quarterly revenue growth, the company is performing very well. MFA Financial's share price broke above its 200-day moving average on January 31st, suggesting that the stock could have legs beyond its one-year target estimate of $7.70 per share. Investors who are currently in a position to pick up shares in this company should consider doing so in order to take advantage of both the potential climb in share price and the great dividend.
American Capital Agency Corp
When Federal Reserve Chairman Ben Bernanke announced a continuation of low interest rates until 2014, investors should have immediately started thinking of companies like American Capital Agency Corp. Trading just over $29 per share, the company offers an amazing dividend of $5.60, good for a yield of 19.3%. With a one-year target of $30 per share, this stock provides a great income-generating opportunity for investors.
American Capital has been paying these incredible dividends for the past two years and adding in a potential increase in share price may make the stock too good to resist. Because of more than $40 billion in debt, some analysts expect the company to lower its dividends; however, quarterly earnings growth of over 315% and a reasonable price to earnings ratio of 4.8 suggest that any reduction won't happen soon. In the REIT sector, American Capital is the closest thing to a must-buy that investors are likely to find.
Continued Strong Yields for REITs in 2012
Over the years, REITs have provided strong dividend gains for many investors. It appears this will continue in 2012 as Annaly Capital Management Inc, Apollo Investment Corporation, MFA Financial Inc and American Capital Agency Corp all appear to be great stocks to consider. Chimera Investment Corporation and ARMOUR Residential REIT Inc, although they pay very high yields, warrant further analysis before implementing new positions.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.