Fed's Plans Are Great News For REIT Sector

Includes: AGNC, NLY, O
by: Regarded Solutions

As many of you are aware, I have defended the REIT sector continuously for months now. My last article flew in the face of the doom-and-gloom crowd that has been hitting the SA pages with all the reasons NOT to continue owning, or not to buy many of the stocks in this sector. This article (a direct rebuttal to the naysayers) was short and direct, and I believe spot on.

My personal favorites in this sector are Annaly Capital (NYSE:NLY), American Capital Agency (NASDAQ:AGNC), and Realty Income (NYSE:O). I currently have strong positions in NLY and O and have been adding to NLY after the last dividend "mini-cut."

Let's Review The Basics

Annaly Capital

Price: $16.71/share
Dividend Yield: 14%
ESS Rating: Bullish

Annaly Capital Management, Inc. (<a href='https://seekingalpha.com/symbol/NLY' title='Annaly Capital Management, Inc.'>NLY</a>)

American Capital Agency

Price: $29.33/share
Dividend Yield: 19.2%
ESS Rating: Bullish

American Capital Agency Corp. (<a href='https://seekingalpha.com/symbol/AGNC' title='AGNC Investment Corp.'>AGNC</a>)

Realty Income

Price: $36.30/share
Dividend Yield: 4.9%
ESS Rating: Bullish

Realty Income Corp. (<a href='https://seekingalpha.com/symbol/O' title='Realty Income Corporation'>O</a>)

Why Am I Bullish In A Big Way

Yesterday the fed "spoke." Well, Mr. Bernanke spoke, anyway, and the other Governors wrote their opinions. It was a major lift for this sector, as well as the overall equity market itself.

Previously, Bernanke told us that short term rates would stay at current levels (almost zero) until 2013. That in and of itself was spectacular news for the REIT sector (especially the mREITs). Then when Operation Twist was announced, it did not have the affect that the apocolyptic crowd knew it would, and the mREITs continued to have a good yield curve to work with.

The government's revamped attempts to redefine refinancing had the same effects as the first go around, which was pathetic and in my opinion will never work no matter what they come up with. The SEC "question" has basically faded into the woodwork, and I think nothing will ever happen with that red herring either.

Now we have the Fed view of the future, chapter 2.

The short term rates will stay this low until at least late 2014, and some Fed Governors (6 of them, actually) believe it will be even longer. We also have an inflation target for the first time ever, which of course will give all of us the Fed guidelines as to when they might actually raise interest rates!

All of this is unbelievable stuff to me. As a matter of fact, for the first time since I began writing about the REIT sector, I actually can envision capital appreciation, which will be better than ever, in my opinion, and the stream of wonderful dividends (even if trimmed) to continue for quite some time.

Are there headwinds? Of course there are. There always will be risks with any stock, but I believe that there is an opportunity right now to buy shares of any of these stocks and know that you have the wind at your back. At least for another 3 years or so.

My Opinion

Short and sweet: I love NLY at these prices and am going to buy more. O pays monthly dividends, which I love, and I am considering adding AGNC to my portfolio. I believe that this sector has a green light for the foreseeable future, and I want to in it even more than I already am.

Disclosure: I am long NLY, O.

Disclaimer: Please do your own research prior to making any investment decision. This article is not a recommendation to buy or sell any security and is the opinion of the author.

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