REITs, such as CYS Investments (CYS), are companies well worth keeping an eye on at present as they have, as a group, experienced a fair amount of success over the past few weeks. This may be due to a law recently passed to stop insider trading in Congress. You may be wondering how exactly this could benefit REITs, such as CYS and others.
Well, the main advantage here is that, to a certain degree, faith has been restored in REITs with government-backed RMBS interests. Although the positive effects that this will have on REIT related stocks may take a while to kick in, I believe that there will definitely be a change. And that change will be for the better.
Some other general news that was recently announced favoring REITs is that the Federal Reserve plans to keep federal funds lending rates close to "0" until late 2014. This is great for companies such as CYS, because it means that its profits will increase significantly. This should give CYS a chance to get aggressive with the extra profit margin and make wise investments to stabilize long-term success.
As of late, many investors have been turning to REITs as the economic uncertainty is causing them to turn to dividend yielding stocks to add to their portfolio. These promising stock options cannot, however, be neatly taken at face value. Careful consideration is needed when looking into these stocks.
Take, for example, Annaly Capital Management (NLY), one of CYS's main competitors. As its volatility is low at present, it is a good option to back. Unless something significant happens, its stock price is not likely to fluctuate at all.
However, despite the fact that Annaly tends to be more popular than CYS, it must be noted that CYS generally yields a higher return. In 2011, for example, CYS yielded a dividend-adjusted return of 22.7%. Most investors consider Annaly to be the more stable and safer option, so it depends on the risk that you would like to take.
American Capital Agency (AGNC), which announced earlier this year that it had priced a public offering of 6 million shares of its 8% Series A Cumulative Redeemable Preferred Stock, is one of the stronger competitors that CYS is up against, in that it is constantly outperforming CYS. That being said American Capital Agency does tend to suffer the same rises and falls as CYS.
Both Annaly and American Capital have both benefited greatly from a rise in mortgage applications of late, which means that each is becoming an even stronger competitors as far as CYS is concerned. As investors flock to REITS at large, CYS will want to do its best to corral this new money in.
Other competitors of CYS, such as Vornado Realty Trust (VNO), are in the news for less than positive reasons. Vornado is facing criticism from its investors for a variety of reasons. The main criticism being leveled against the company by shareholders is that its share price leaves much to be desired. Because the stock has recently begun to be perceived as an underperformer and an overall disappointment, the company's chairman announced that it would be combating the issue by considering a variety of different options. These options include such acts as selling its stake in Toys R Us, buying back shares, or perhaps even dissolving the real estate investment trust altogether.
The plan seems to be to put everything on the table to raise performance. Although Vornado does at present seem to be a worse option than CYS, it is fairly safe to assume that this stock will improve. It may be a manner of personal risk management, but I see Vornado's willingness to make big moves as an attractive reason to buy. CYS has been less forward about its plans.
Hatteras Financial (HTS), another one of CYS's main competitors, has done very little of note so far this year. One of its more attention-grabbing actions was to announce that it had priced a public offering of 17,500,000 shares of its common stock for expected gross proceeds of approximately $474.6 million before expenses.
Lesser competitors, such as MFA Financial (MFA) and NorthStar Realty Finance (NRF) have also been in the news for several reasons. MFA announced pricing of its public offering of 8% Senior Notes due 2042 earlier this year and NorthStar successfully won its appeal in a court case in which it had been involved for a fairly long period of time.
Last, but not least, I feel that it is important to consider Chimera (CIM) in terms of the competition that it poses to CYS. Although it is considered be a very good bet for many of the same reasons as CYS, there are still factors to consider that may make you think twice about this stock. These factors include concerns about the accounting situation of the company, especially as an auditor recently resigned. Another concern is the fact that Chimera is exposed to private MBSs, and to the rising rates of foreclosures in the US.
Chimera may not be an obvious option, but it is important that you also note its positive aspects, such as being a cheaper buy than many other REITs, and the fact that the improving economy means that this stock has more potential for gains. It must also be kept in mind that this is one of the few REITs that have above average dividend outlooks.
The news is good for REIT's at large. The STOCK act passage signals some smooth sailing ahead and investors are taking note. The question, then, is whether CYS will ride the wave or be left at shore while its competitors sail out.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.