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Fat Yields, Less Risk


  • We’ve loaded up on mortgage REIT preferred shares. As the common shares kept pushing higher, the lower risk gets appealing.
  • The preferred shares are higher in the capital stack than the common shares, which enabled them to bounce back after the pandemic panic.
  • We’ve been buying up positions in preferred shares so we can continue to earn a solid return on our capital.
  • Some investors are thoroughly pumped up for common shares in the sector. Someone always buys in after the price has rallied.
  • This is a great opportunity to be hunting through the preferred shares for opportunities to maintain income with less risk.
  • Looking for more investing ideas like this one? Get them exclusively at The REIT Forum. Learn More »

Get ready for charts, images, and tables because they are better than words. The ratings and outlooks we highlight here come after Scott Kennedy provides his weekly updates in the REIT Forum. Your continued feedback is greatly appreciated, so please leave a comment with suggestions.

Today we’re highlighting a few common shares and a few preferred shares.


Neutral on AGNC Investment Corporation (AGNC). We still have a small position. Shares are trading at a discount to GAAP BV, but pretty close to tangible BV estimates. That looks like a reasonable range for the stock.


Neutral on Dynex Capital (DX) as well. Shares are trading pretty close to our estimated book value. Management did a great job delivering better returns to shareholders during the pandemic by protecting book value better than peers. This looks pretty reasonable. We would expect shares to generally trade around book value.


We’re taking a bearish outlook on Orchid Island Capital (ORC) as shares carry a larger premium to our projected book value.

Preferred Shares

If you're still looking for a big dividend yield (with less risk), you may want to consider some of the mortgage REIT preferred shares. That doesn't mean "go buy them all". That would be stupid and wouldn't fit the standard we've established for analysis. However, we will take you through a recent share we considered. We were hoping to get a nice entry opportunity with a dip, but it didn't happen. We would still be interested if the shares dip.

We had a preferred share we highlighted for subscribers during Preferred Shares Week 246 that we want to share in the public article.

Source: The REIT Forum

CHMI-A (CHMI.PA) joins the list of potential opportunities. Has this happened before? That’s rhetorical, we’ve suggested CHMI-A was more expensive than most of their

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This article was written by

Colorado Wealth Management is a REIT specialist who began his decades-long investment career in a family-owned realtor office before launching his own company and embracing his drive for deep-dive REIT analysis. He holds an MBA and has passed all 3 CFA exams. He focuses on Equity REITs, Mortgage REITs, and preferred shares.

He leads the investing group The REIT Forum. Features of the group include: Exclusive REIT focus analysis, proprietary charts and data models, real-time trade alerts posted multiple times a month, multiple subscriber-only portfolios, and access to the service's team of analysts and support staff for dialogue and questions on the REIT space. Learn more.

Analyst’s Disclosure: I am/we are long AGNCO, NYMTM, CIM-A, AGNCP, ARR-C, NRZ-B, CMO-E, NRZ, AGNC, SLRC, GPMT, PMT. 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.

As a reminder, Scott Kennedy also is an author for the REIT Forum. You may see his commentary featured in our articles and may notice an extremely high amount of overlap in our ratings, so subscribers reading this article should see Scott’s latest REIT Forum sector update for more detail.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (43)

Brasada profile picture
It seems challenging to invest in these preferreds at this time as they have all mostly recovered. The draw down potential of 50% plus is challenging against the 6-7% yields with no real upside.
nickag59 profile picture
@Bud Fox, the Great name, Bud Fox from Oliver Stone’s Wall Street. Wish I’d thought of that. 😊
Pablomike profile picture
You could go with Gordon Gekko. Michael Douglas won an Oscar tor that one.
bmccarren1 profile picture
Love your work
jakefountain profile picture
Most of those are are above par. Time to buy has passed.
Pablomike profile picture
VIABP is down $15 today @ $67.50. The VIACP is @ $67.55 for a yield of 8.5%.
jakefountain profile picture
@Pablomike Made some good coin on the common (still have 50 shares out of 500) but right now not going there again.
jakefountain profile picture
@Pablomike Also might be a good reason for the price. These are mandatory convertible:

Unless earlier converted, each share of Mandatory Convertible Preferred Stock will automatically and mandatorily convert on April 1, 2024 (subject to postponement for certain market disruptions or other events) into between 1.0013 and 1.1765 shares of ViacomCBS’ Class B common stock.
Talking about fat yields with limited risk. How about VIACP? Preferred convertible stock of Viacom that sold last week at $85 which is now in the mid $60s. Initial coupon was 5.85%, now yields more than 7%. Viacom got caught up in the Archegos fiasco.
@DeepValuePlayer My read on the VIACP is it's basically the same as VIACA with a steeper dividend to get it to the same price as the regular shares by the time of conversion on 4/1/24. So far it is not really trading as a different tier of stock.

Share class // Todays Close // Future Dividends // Value at 4/1/
VIACA // 67.09 // 4*0.96=3.84 // 70.93
VIACP // 47.49 // 4*5.75=23 // 70.49
@zsigmundik Thanks for your reply. However, it still offers a nice dividend yield and upside on capital appreciation given the recent sell-off that had nothing to do with fundamentals.
@zsigmundik Please present your analysis in an more understandable format. I would like to know what each data point means/ represents and see a better explanation thereof. Additionally, please look at your "Todays Close" price for the" Share Class". I think you reversed their values. I Like your thinking, but having trouble with your presentation. Thanks1
Cuip99 profile picture
Long in ORC and got it at the bottom. Normally I do not invest in mREITs but took a flyer on ORC. It has been a winner to me and I will stay in the hold position.
I cashed out some REIT preferreds after ex-div for nice profits.Now I can't do anything with the money, prices keep going up.
I originally stumbled upon your writing researching $VNQ when it was not getting any footing in the aftermath of last year's drop. I've enjoyed in particular your articles on preferred shares for their yield and relative stability. Those qualities have driven me further into searching for other preferred shares, particularly in the utilities sector. I realize you do REIT research, but any curiosity on doing future research on utility preferreds? Expecting the answer to be no, do you know anyone on SA that covers those trades that you respect?
I may have missed it, but where are the ratings? Are any of the preferred shares mentioned investment grade?
Colorado Wealth Management Fund profile picture
@SFetf The mortgage REITs generally aren't going to get any credit ratings on their preferred shares. Since a mortgage REIT can change its position so rapidly, it would be difficult for a credit rating agency (which can be a pretty slow beast) to adjust. If they were getting investment-grade credit ratings, they would have substantially lower yields. Part of the appeal for trading in this sector is that the credit rating agencies aren't here, which results in higher yields and more inefficient prices for us.
01 Apr. 2021
@Colorado Wealth Management Fund

What do you think about the steepening yield curve, widening credit spreads and possible dividend increases for commons?

With div. increases there is upside risk which preferreds don`t have?
@Avo1 He mentioned the yield curve some in "Yield Curve Drove Massive Rally"
Colorado Wealth Management Fund profile picture
@Avo1 Yield curve is a factor driving the rally. It impacts perception more than fundamentals because many investors (and analysts) who think they know the sector put too much faith in the yield curve.

Widening credit spreads? It feels like credit spreads are still pretty tight.

Dividend increases for the common? Entirely possible for several mortgage REITs. Many were pretty careful with their dividend rates coming out of the pandemic panic.
Pablomike profile picture
@Colorado Wealth Management Fund
I don't foresee any dividend increases yet. Too many unknowns coming out of the pandemic. Maybe by Q3.
Based on the graph above, save to assume ARR.PC is still in the buy range. The rest seem to be hold.
Colorado Wealth Management Fund profile picture
@Artemusga We're long ARR-C and bullish on it here.
Do you guys think you'll ever include GLAD as a covered BDC?
Why does WMC seem so sickly? it seems like a decent chance to get a little upside. I understand AAIC because of no dividend...but would that give it a larger shot at return? CWMF, what do you think about WMC vs AAIC?
Colorado Wealth Management Fund profile picture
@mcarila86 It's up to Scott whether he wants to cover GLAD.
WMC and AAIC both have large discounts and high-risk ratings. We've got targets on both inside the service, but I haven't posted them in our public articles for quite a bit.
@Colorado Wealth Management Fund i got a public piece from scott on AAIC and other mreits this week after he shared with subscribers i think on friday. he had a buy rating on aaic at 4.04 on 3/26/21. hope this helps the OP.

want to add that CWMF continues to 'square up the ball' ** when it comes to Preferred reits and prfd mreits in particular. i've learned so much in a few months. will be returning as a subscriber and trying to soak as much as i can when in the know and at times when out. marshaling our resources. still LOVE this service. as i've said to those who may listen: THE REIT FORUM has got it going on. #1 in my book.

(**to use a baseball term on opening day; GO PHILLIES!!).
Colorado Wealth Management Fund profile picture
@shortbuyers Thank you! Sometimes I forget which pieces Scott has sent public lately. Sounds like the rating is already out there and that matches my memory of about where the targets would be.
Dividend Master profile picture
$ORC is the perfect mREIT to short and i'm short a bunch

they are at 10% premium to Q4 BV which is utterly insane and unjustified

my guess is they are underhedged to be paying a 13% dividend yield and will get whacked in Q1

they did a secondary earlier this quarter when stock was at $5.50 , you can bet they are going to do one soon now at $6.00

they a re following the $ARR playbook perfectly .... overpaying on divvy and slowly reducing it over time

i predict a very large secondary shortly
Colorado Wealth Management Fund profile picture
@Dividend Master A secondary offering would make sense. Might need to pre-report Q1 2021 results as part of the disclosures in an offering.
Outstanding article with sound comparisons and information to back it all up. Many thanks👍🏽
Colorado Wealth Management Fund profile picture
@rmark05101 You're welcome. Thank you for the kind words.
I'm long on ORC and I'll take my 13%+ return all day long.
Colorado Wealth Management Fund profile picture
@extremescholar I respect your decision. As a scholar, have you checked our record on making successful calls in this sector? It might give you reason to double check your research process.

There are a handful of analysts whose work I respect enough to double check if I see they have a different opinion.
@Colorado Wealth Management Fund I've been following for quite some time. I don't always agree, but your data has been very useful. Thanks for challenging me and thanks for the analysis.
Colorado Wealth Management Fund profile picture
@extremescholar You're welcome. Thanks for reading and following.
tjwins profile picture
Solid article. I always appreciate the direct language rather than passive fluff we see elsewhere. Question: I was hoping you might touch in CHMI common while you were at it - the share price has been floundering as of late, which I see is a potential opportunity, however the outlook for upside is very long. Would you agree that it’s a matter of time or do you simply see too much risk in their commons period?
Colorado Wealth Management Fund profile picture
@tjwins It's within the reasonable range. It still has a materially larger discount to book than most peers, but the recent earnings reports have been terrible. Given the terrible reports, it isn't surprising for them to have a bigger discount than peers. I think those reports are weighing on investor confidence in their decisions.
tjwins profile picture
@Colorado Wealth Management Fund thanks for the reply. I agree. I’ve read through the most recent and it seems they acknowledge their recent weakness and address the future as optimistic but they don’t provide a lot of specific details in either direction so it’s hard to discern if the outlook truly is positive or if it’s just coach-speak. Relatively new to the holding so still trying to get a feel for their management.
Pablomike profile picture
@Colorado Wealth Management Fund
"recent earnings reports have been terrible"
I guess that answers my question doesn't it?? Wondered why CHMI A had a risk rating of 3.5. I noticed the outsized Common Yield and thought there must be problems.
Already looking forward to what's next. Thanks!!
Great, as always.
I'll still take CIM-B over most preferred issues. And over its common.
NLY common starting to look decent again, having come off those pre-dividend prints around $9. You called it.
Colorado Wealth Management Fund profile picture
@thedoc5350 Thanks for the support and remembering our calls.

I'm a bit sad we didn't get some CIM-B or CIM-D several weeks ago. We highlighted both as top picks for subscribers, but the price bounced before we were ready to place the trade and promptly climbed out of the range I wanted to pay to initiate a position. Glad for the subscribers who got in though.

My common share positions for the sector are fewer now than they were a month ago. Took profits on some investments. The remaining ones have continued to climb, which is nice. Missed a few very quick dips in the sector where shares dropped into the target range for a few hours and then roared back. Feels like volatility has been a bit elevated, but it might just be because some shares are trading close to the buy/hold line, which is drawing more attention to the volatility.
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