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Many income investors like the idea of getting distributions from REITs because of their high payouts. That said and within the last six months, two REITs have entered the marketplace that I'd like to examine a bit closer, each having yields over 7%. The REITS in focus today are Western Asset Mortgage Capital Corp. (WMC) and Select Income REIT (SIR).

Western Asset Mortgage Capital Corp. trades in a 52-week range of $17.57 (52-week low) and $20.74 (52-week high), closed trading at $20.42/share on Tuesday after the company received an initial rating of a BUY from Compass Point who also set a $21.00/share price target for the stock. There are two variables to consider in terms of WMC. First, and as is the case with any REIT, we need to take a look at the company's yield. On Thursday, July 26, the company announced a quarterly distribution of $0.38/share to be paid on August 14 to shareholders as of August 6.

Based on Tuesday's closing price of $20.42/share, the distribution equates to a yield of roughly 7.44%. That's pretty good considering competitors Mission West Properties, Inc. (MSW) and National Retail Properties (NNN) only yield 5.80% and 5.40%, respectively. The second thing to consider with regard to WMC is the company's portfolio composition which as of June 19 totals $2.27 billion in mortgage-backed securities. Potential investors should note that the company is scheduled to report earnings on Monday, August 13, 2012, and analysts are expecting WMC to earn $0.30/share on revenue of $4.12 million for the June quarter.

One of the secondary things to consider, based on the June 19 portfolio numbers, is the fact that the company's portfolio consists of 72.77%, or $1.652 billion of fixed rate agency Residential Mortgage Backed Securities of at least 20 years. In my opinion, that's a pretty strong catalyst moving forward and something that needs to be considered before establishing a position.

Select Income REIT trades in a 52-week range of $21.23 (52-week low) and $26.59 (52-week high), closed trading at $25.16/share on Tuesday and is scheduled to report earnings on August 6. Analysts are expecting SIR to earn $0.50/share on $26.45 million for the June quarter. I think SIR is a great investment at current levels for two reasons. First, the company currently yields 7.80% ($1.96) and is nearly 1.45 times higher than that of Monmouth Real Estate Investment Corp. (MNR) which currently yields 5.40% ($0.60). Second, is the company's profit margin of 63.75% over the last 12 months, which is slightly above that of Annaly Capital's (NLY) 63.40% and much higher than MNR's profit margin of 41.33% for the same period.

As we approach the second earnings announcement by SIR since its IPO there are a few things to consider. First quarter results came in 123.3% higher than the Zack's consensus at $1.55/share on revenues of $27.6 million dollars. If the company can surpass second quarter number by even 10%-15% and beat revenue numbers by 5% we could see some sustainability at about the $26.50/share - $26.80/share level. The second thing to consider is the possibility of an increased distribution during the upcoming quarters. If SIR continues to surpass estimates we could see the distribution increase as well since REITs are required to payout 90% of their income to shareholders.

Final Analysis

In my opinion, both SIR and WMC are pretty strong plays especially from an income standpoint as each company yields at least 7%. Based on the portfolio composition and profit margins of both companies establishing a position at these levels is a very good prospect. For those still cautious my only advice is to pay close attention to both upcoming earnings reports as both companies should fare pretty well.

Source: 2 REITs To Consider Today