Mortgage REITs Will Retain Attractive Returns in 2012:
Prefer non-Agency: Heading into 2012 we think that the hybrid/non-Agency REITs generally offer more attractive value with the potential for more capital appreciation plus a more stable dividend outlook given the attractive reinvestment environment.
TWO remains top pick: Against this framework Two Harbors remains our top pick among the mortgage REITs. The company has been opportunistically adding to its non-Agency position at incrementally accretive risk-adjusted yields. This combined with the Agency portfolio with favorable prepayment characteristics gives us confidence in the sustainability of the current 16.8% yield.
See the full table of mortgage REITs.