Apollo Residential Mortgage (NYSE:AMTG) is set up as a real estate investment trust (REIT), with its focus on the mortgage sector. It primarily invests in, and manages residential mortgage-backed securities, and residential mortgage loans. Since this company is set up as a REIT, it is legally required to pay out most of what it earns to shareholders. This is one reason why Apollo shares offer a high yield. The other reason is due to the fact that companies like Apollo use leverage. By borrowing money at low rates, and investing it in mortgage-backed assets that pay a higher return, this company is able to amplify the payout.
This strategy enables mortgage REIT stocks to vastly outpace traditional dividend stocks. For example, widely-held dividend stocks like Merck & Co Inc. (NYSE:MRK) yield about 3.9%, Exxon Mobil Corporation (NYSE:XOM), comes in at about 2.6%, Pfizer Inc. (NYSE:PFE), pays about 3.7%, and Intel Corporation (NASDAQ:INTC) is yielding 3.6%. These are all world-class companies, but due to the ever-rising share prices, the yields have been pushed down to levels that are far from exceptional.
Apollo manages to yield nearly 15%, which means this stock could pay more in dividends in a single year, than what some of the dividend stocks (mentioned above), will pay in about four years. While the well-known blue chip dividend stocks still make sense as core holdings for some investors, adding some high-yielding investments like Apollo could be rewarding. Here are three more reasons to consider buying the stock:
1) This company is managed by experienced investors. It is externally managed and advised by ARM Manager, LLC, which is an indirect subsidiary of Apollo Global Management, LLC (NYSE:APO), a major global investment manager.
2) Just recently, Apollo Residential Mortgage was added to Zacks #1 Rank as a strong buy. Solid analyst support can keep a floor under a stock and even help post it higher.
3) Apollo recently reported solid financial results. For the second quarter of 2012, it earned $14.1 million, or 66 cents per share. The Apollo portfolio experienced lower prepayments when compared to the broad market and the CEO made positive statements about the future outlook and investment strategy, saying:
"We were able to deploy the capital from our April equity raise into both Agency and non-Agency RMBS with attractive net interest spreads, which we believe was well timed as spreads have tightened, particularly in the Agency RMBS market, since April. In addition, during the second quarter we continued to opportunistically rotate our portfolio holdings into a larger concentration of non-Agency RMBS, an asset class in which we continue to see investments with attractive, risk-adjusted returns."
Here are some key points for AMTG:
- Current share price: $20.02
- The 52 week range is $14.02 to $20.35
- Earnings estimates for 2012: $2.83 per share
- Earnings estimates for 2013: $2.88 per share
- Annual dividend: $3 per share, which yields about 15%
Data is sourced from Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Disclaimer: No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.