With the plethora of good news regarding low federal funds rates, companies in the REIT sector are basking in the positive momentum - and it looks like it could possibly last for at least another two years. With historically low rates in the neighborhood of 0%, REITs have had ample opportunity to continue buying - and that they have done.
Added to the strong dividends and rising share prices could also come additional investor confidence following the STOCK Act (Stop Trading on Congressional Knowledge Act). With its aim to stop insider trading by members of Congress - including the President - this Act could help in producing more public faith in government run agencies. And, with Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) in that mix, REITs may certainly stand to gain from such positive investor sentiment.
One of the particularly strong REITs in this sector is ARMOUR Residential REIT (ARR). The company's $0.10 monthly dividend produces an annual yield of over 17% - and a current 52-week yield in excess of 19%.
In this article, I will discuss why I think that ARMOUR could provide a great opportunity for both income and growth, possibly for the short- and the long-term for investors. Given the company's strong performance, coupled with outside forces like STOCK and the low federal funds rate, these shares could very well offer investors the best of both worlds.
Checking In With the Fundamentals
ARMOUR invests primarily in adjustable rate and fixed rate residential mortgage-backed securities. These equities are either guaranteed by or are actually issued by the United States government agencies and/ or by agencies such as Fannie Mae, Freddie Mac, and Ginnie Mae that are sponsored by the United States government.
Even with all of the great many positive looking REITs today, ARMOUR may very well stand above the rest, and it could prove to be a great opportunity for investors that are looking for high dividend returns along with strong future growth prospects. Earlier this year, the company announced a monthly cash dividend of $0.10 (the company pays its dividends on a monthly basis), giving its investors a dividend yield in the neighborhood of over 17%.
The firm also added an underwriting of 30 million new shares of common stock earlier this year as well. In addition, ARMOUR announced in late May of this year that it would be commencing a public offering of its Series A Cumulative Redeemable Preferred Stock. The company's intent with the profits from this particular offering is to acquire additional agency securities - at least as the conditions of the market warrant - as well as for general corporate purposes.
Just some of ARMOUR's first quarter 2012 highlights include an estimated taxable REIT income of over $47 million as well as an average yield on assets of over 3%, with an average net interest margin of 2.23%. In addition, the company has a strong liquidity position, with over $721 million in total liquidity.
Other REITs to Consider
The strong overall momentum that has affected nearly all REITs of late has made several companies worth a second look by investors. One such REIT is CYS Investments (CYS). Investors in these shares currently receive an annual dividend of $2 per share, amounting to an annual dividend yield of just under 15%. Year to date, CYS shares are up approximately 8%, and the company's earnings per share estimates are strong at $2.23 for 2012, and $2.21 for 2013. Those investors who seek both income and growth opportunity may want to consider CYS as another REIT compliment to their American Capital shares.
Another REIT that seems to be taking advantage of the low interest rate environment is Newcastle Investment (NCT). These shares are providing investors with a 13% dividend yield - and would pose a particularly good buying opportunity if they could be picked up for under $6, allowing investors to ride up the share growth while also cashing in on dividend income.
Riding the positive REIT news is also American Capital Agency (AGNC). With over $100 billion in assets under management, American Capital presented first-quarter 2012 earnings of over $640 million. With a one-year annualized return of 28%, and a three-year return of 38%, this REIT definitely has forward moving momentum. Proving that is the share growth of almost 16% year to date.
Not to be left out, Resource Capital (RSO) is also posting strong numbers. With a dividend yield of roughly 15%, this REIT is presently showing a P/E ratio of over $4. In addition to positive news on the common share side, on June 15th of this year, Resource Capital issued preferred shares that are yielding over 8%. Therefore, this REIT too is certainly worth a second look.
The Bottom Line
At present, there is a wide array of REIT investment choices for investors - many offering double digit dividend yields, along with strong upward share movement. This REIT friendly environment is likely to continue well into the next two years - providing a nice opportunity for those who seek both income and growth.
With ARMOUR's dividend yield in the area of 17%, though, I feel that this REIT may stand a bit in front of the rest, making it an income stock that investors can trust. This REIT shows many positive factors, including an upwardly moving stock price. This, coupled with the company's nice high dividend yield, gives investors both income and growth, potentially even for the longer term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.