Under pressure from many investment news outlets, many REITs have been facing hard times recently, but they seem to be looking up. To any amateur investor, it seems as though right now is the best time to buy REITs due to high yields. Is this a legitimate positive, or is there some kind of sneaking reason behind the high yields in hard times that seem to be plaguing the minds of many investors? So is there a profitability factor with REITs, or should you reconsider any current or short term future investments in REITs? It is quite a broad question that should be considered on a separate basis for each individual REIT that any investor is considering.
As of right now, Annaly Capital Management (NLY) is doing horribly, at least comparatively. Of course, with REITs, the most important number that any investor cares about is the yield price and percentage. In the case of Annaly, yields have been decreasing since 2nd quarter of 2011, a very bad sign. This is a textbook case of an overpriced stock undergoing a correction. While Annaly held out with a percentage higher than 14% for a number of months, it seems to be dropping rather quickly. There are many reasons for this; the still recent market crash, decreasing interest rates, and attempt to decrease leverage. While the leverage decrease may seem like a sensible move, well, it is just that. Simply put, in the stock market, sensibility does not equate to profits. By decreasing leverage through less debt and more equity based spending, there just is not money for investors in this situation, especially in a stock type that solely depends on yield price and percentage.
After the United States downgrade, Annaly's CEO stated that he felt that the company should take a more conservative and safe approach to matters of debt. By doing this, he severely decreases confidence of growth in his company, subsequently making stock price fall and yield amounts/percentages decrease (even if a quite slow). I would suggest staying out of Annaly for now, because the only reason the stock prices and yield percentages have not degraded exceptionally is due to the company's new, and hopefully, temporary policy on "a more conservative approach". The simple fact is that right now, there is no room for growth because the company is not going to risk, and therefore, expect a long term decrease in prices if the company extends its policy of safety. I highly suggest avoiding Annaly until it makes a policy that is more beneficial to growth and development, and of course, this policy will have to be reviewed to see how it will affect the financial world.
Another REIT that is out there for the consideration is Hatteras Financial (HTS). With a rather consistent yield, I would highly suggest looking into Hatteras as an option in your portfolio. While yield percentage seems to be taking a slight dip, Hatteras seems to be interested in maintaining a consistent yield price, which very good news for investors.
This is a company that knows what it is doing; Hatteras has maintained its consistent yield through use of leverage control and insider buying that allows the company to portray an image of safety and security in yields that is very uncommon in REITs. Of course, the company is only set to head up in the long run as they maintain a consistent dividend/yield rate that does not get overblown, and continue to accumulate mass praise from great publications that will encourage purchase of its stock. I would definitely suggest purchasing some stock in Hatteras if you would like a rather safe, and soon to be growing, yield in your portfolio.
Another REIT that one may consider is Invesco Mortgage Capital (IVR). Generally, the consensus on this stock is quite diverse. I personally recommend avoiding this stock. If you check the price of the stocks versus the yield rate over any recent period of time, you will find that they simply do not match up. How is it that a company that dropped from a $23 price tag to a $13 price tag could maintain, and even raise, its yield rate over the same period of time? Simply put, in my opinion, the floor is soon to fall out from under this REIT, and I suggest that if you sell now while it is at a medium and you can get some short term money out of this long term blunder. This REIT will see a huge drop in yield prices and percents after a continued decrease in price that will, of course, further the drop. When we see a company like this, where yield just does not correspond to the financials, it is time to bail while you still have a chance. Perhaps, later there will be a time when this stock is back on the rise, but for now, I would suggest laying Invesco to bed.
American Capital Agency (AGNC) is another REIT company that is, to put it plainly, the polar opposite of Invesco. While we see the price of the stock slowly rising, yield percentages are actually dropping. To maintain this, American simply increases leverage slightly to grow the company, and to maintain consistent yield percentages. This makes American a much more suitable investment for anyone looking to get in for the long haul, because the yield percent may stay the same, but as stock prices go up, as does the yield amount. Definitely keep American Capital Agency in your sights, and I'd suggest picking up some stock in the company as its numbers really speak for themselves, even in such a hard time as this for REITs in general.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.