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We Bought Another Huge Yielder


  • We just increased our position to get a big dividend yield and healthy upside in the share price.
  • Shares have rarely been this cheap. They often trade in a very tight range.
  • Since the fundamentals remain solid, we expect the share price to recover, giving us an attractive combination of dividend yield, upside, and stability.
  • While there are plenty of high-risk sectors in this choice, our pick didn't reduce or delay dividends during the pandemic.
  • We are also bringing you four additional picks and suggesting investors drop one which is overvalued relative to peers.
  • Looking for a portfolio of ideas like this one? Members of The REIT Forum get exclusive access to our model portfolio. Learn More »

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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/we have a beneficial long position in the shares of AGNCO, CIM-A, ARR-C, DX-C, NRZ-D, AGNCP, MFA-C, NRZ, SLRC, AAIC, PMT, FSK, RC either through stock ownership, options, or other derivatives. 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.

Colorado Wealth Management Fund and Scott Kennedy are supporting contributors for The REIT Forum. Our ratings and outlooks will often overlap. Any recommendation posted in this article is not indefinite. We closely monitor all of our positions. We issue Buy and Sell alerts on our recommendations, which are exclusive to our members. I have an indirect conflict of interest with ABR and STWD. Neither I, nor any contributor for The REIT Forum, will provide investment advice, reply to questions, or engage in discussions regarding these two mREIT stocks.

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 (61)

Only investors with less than 10 years experience think 7% is a great yield, but they will learn.
Colorado - let's do some math. You bought on Mar 1 at $23.35; it went $24.00 two days later which is a 4.4% gain in two days. You're crushing it. Awesome work in a tumultuous market!
NYMT missed earnings bigly any thoughts?
Nymt N and O?
Reddington profile picture

I have NLY at a cost basis under $5. should I be worried?
and a self-storage REIT from 2008.
@Reddington Nice cost basis in NLY. Must've bought it when the world ended again Mar 2020. :) You didn't say which storage reit but I looked at a few. PSA LSI CUBE EXR NSA from 2008. Congratulations.
Reddington profile picture
@jzut yep. mortgage REITS were part of the pandemic sell-off too 60-75% off. former cost basis was in the 9's
I bought Sovran Self Storage in 05' which changed it's name to Life Storage. I don't like the name change but's still a keeper.
I'm sticking with it even though it didn't do as great as AAPL, MSFT, or NVDA in 15 years. I had to allocate safely back then and bought ADBE too.
You are guessing that these yields are attractive. We are in close to 10% inflation and you may buy these 25% cheaper soon.
Colorado Wealth Management Fund profile picture
@VIPERMAN94 Inflation metrics are bogus. Inflation was way below the actually increase in market prices for 2021. Today it is higher than the increase in market prices. These shares switch to a floating rate, so when the rate starts floating if short term rates are high it would lead to a higher dividend. If short term rates are low, investors aren't getting a huge yield anywhere else either.

I'm not saying inflation is completely irrelevant, but these do contain a bit of a hedge on rates. As a hedge against inflation, common stocks and real estate (including equity REITs) have performed vastly better than cash when measured over significant periods.
congie66 profile picture
@Colorado Wealth Management Fund Smartest guy in the room.
How about ARR ORC. Monthly payers.
Colorado Wealth Management Fund profile picture
@jzut More risk and more price decline. How about I just put part of my dividend away instead of spending it the month it comes in? That gives me more flexibility to pick based on valuation.
Colorado Wealth Management Fund profile picture
@Colorado Wealth Management Fund PS. I'm not doing public ratings on those shares today. Just saying I wouldn't restrict myself to monthly dividends. It's nice to have, but it isn't required. You could've suggested AGNC and DX as monthly payments though.
@Colorado Wealth Management Fund I"m surprised you said AGNC and DX. They have the same chart pattern as ARR and ORC. ? Downward but both off the bottom "some". Along with NLY and REM. If somebody doesn't own them then maybe start a small position. I do own ARR ORC and REM. NLY and AGNC are the top holdings in REM. I will admit I have loses in ARR and ORC. I added to both as they went down. The loses are what they are BUT the dividends every month are what I care about right now. They are in the IRA. I have many other stocks with large gains bought years ago. And they pay dividends.
Interesting! What about the regular NLY and AGNC stocks? Are they not good buys as well?
Colorado Wealth Management Fund profile picture
@Henrik79 For the moment I'll just say that I think AGNC is a better deal than NLY.
I notice that you do not include the ratings of your recommendations. Overall individual investors should not be buying non-rated investments. BAC, APO, WFC all have investment grade preferred shares. Their yields are 1-2% lower, but at least overall investment grade companies do not have to sell bonds or stock to generate funds in order to provide investment dollars. Mortgage REITs continue to dilute their shares and their long term charts are money losers. AGNC was at $35 per share in 2012 and today it is $13.19. Yes the income has help reduce the losses, but who wants to invest and lose money? NLY was $21 in 2008 and today trades at $7.11. I know preferred have fixed income coupons, but if their common does not work then eventually their preferred shares may suffer as well.
congie66 profile picture
@SFetf appreciate your perspective! Owned NLY and watched it implode March 2020.... thanks for commenting
Colorado Wealth Management Fund profile picture
@SFetf If they were getting credit ratings, it would push yields down. That's the only reason for a company to pay the credit rating agency.

If rates rise, a 2% difference can be very significant.

I'm confident in being able to pick these shares and in evaluating the level of risk within the shares. If investors shouldn't buy anything unrated, they should probably just go with an ETF and work more hours rather than trying to optimize their investments. Retail investors won't be the first to know when the rating downgrades are coming, so focusing only on rated investments creates a different risk regarding information disparity.
Throwing Ketchup profile picture
I put in a relatively low offer on AGNC-P on a recent down 500 day (there have been so many...) and was surprised later to have it filled before day's end. YEAH!
Zucks profile picture
I understand as a trader that your analysis is reasonable. However, as a buy and hold individual, I do not understand this or similar articles on SA where full purchases are made at these so called lower levels when there has yet to be a real market correction of between 10% and 20%. Maybe opening some half positions knowing you will average out in the future, which I did a while ago, makes some sense, but with rising rates, continued Russian aggression (and a demented leader warning of nuclear war), rising interest rates, general inflation, a contentious midterm election, and the forgotten black swan, and the incredible length of of this bull market, which may continue for sometime due to strong earnings*, it’s almost inevitable that this market will correct. Some cash now can be useful. Buying in 2002 and 2009, for example, was very beneficial. I know the difference, because in 2017 I saw what was coming again and, sadly, only got defensive. These dips, even if 20% for a specific investment, is not the main event. *Knowing that earnings may keep the party going, I reluctantly opened a few half positions I HDO stocks as UTF and UTG since I need the income.
PPS Since Friedman was still alive, if you followed the money supply issue, you saw 1986-1989 coming, but I had no savings then due to family health issues.
@Zucks I am holding 100% cash. When everyone is so careful with capital allocation, 100% cash is the best thing to prepare for the next big dip. I have just realized that in our time, buying the dip is much better than picking the best companies.

Trader or not, smart or not, almost everyone putting money in the stock market knows which companies are good to great. So, the ideas of picking great companies only applicable to microcap, full of risks. So, it is better to be patient to wait for a dip, go all in, wait for 30%-50% gain and repeat.

Taxed or not I don't care. We will make MUCH more money in shorter term, which unlocks the potential of having real businesses outside the stock market. If I can make $1MM in one year like the bitcoin traders and exit the market to work on real estate projects or small businesses that generate healthy cash flow with potential sneaky tax move, I will get rich faster than the value investors, who hope for 10%-12% annualized return in the next 20 years to beat the market, or hope for 5% yield to live without working.

Unless you come back from the future and know exactly you will die at the age of 80, holding forever like Mr. Buffett will make your children rich, not you. Holding forever reminds me of old people that win lottery of hundreds of millions at the age of 70 or 80, when they are about to die.
Colorado Wealth Management Fund profile picture
@Zucks In most market dips, quality preferred shares dip less than the common. In this case, even if stocks dip 12% over a year and the shares dip another 6% (not what I'm predicting, but why not consider it), the dividend yield would still have given investors a slightly positive return. But if things calm down a bit, they could easily trade near $25.00 again after paying our some dividends. Overall, that's a nice risk/reward profile.
dundey profile picture
@American Dream Comes True lol. Good luck with that.
EFC Forget about making money from the share price...
@Beatle1 - Sir Paul. I love the Beatles! Finally mastered Blackbird on my Telecaster. Too cheap to buy an acoustic.

- Hoosier
gman1253 profile picture
Thanks CWM.... have been adding to AGNCP in small batches.
I think there’s serious risk that the market isn’t priced in on the floating rates. If rates stay low or if rates rise and then come back down in a couple of years, some of these preferreds are going to have low yields and long durations. NLY-G and AGNCM in particular look like time bombs.

Then there’s the LIBOR/SOFR issue. SOFR is lower than LIBOR, but is the likely replacement. NLY-F floats soon. If NLY doesn’t call NLY-F, it could be a wake up to the market that the floating rates matter. A sudden repricing would take a year’s dividends.

As the article states, not all preferred series are equal. It is essential to consider the potential floating rate.
GetRealHere profile picture
It still amazes me these are classified as REITS, when all they are doing is using financial engineering, borrowing, derivatives to pay spreads. They essentially own nothing tangible. Many of these "REITS" total returns are less than their income payout. NLY has a fantastic return of 1.69% over the last 10 years, wow sign me up!
Weather Man profile picture
@GetRealHere There are winners and losers in every sector of the market.
@GetRealHere I bought some PSEC when it dipped really low ($7.94/shr), and could sell it now for a profit, not counting the monthly divvies.
So, while I agree with you regarding what could happen, that's correct. The key words being "could happen". If you bought it during the 2020 drop for $4-$5, you probably don't care that this year it's floating right around the $8 range and picked up monthly divvies for more than a year.
jakefountain profile picture
@Weather Man More losers in these MReit's than most sectors. If you going to go there preferred is the way.
NYMTN is the best priced of their preferreds today, possibly since this article was written. So far below par I'm not concerned about call risk.
dbkemp05 profile picture
@rbow yes doesn’t call for years
KushMonsterOG profile picture
Hopefuly it doesnt follow the path AGNC is with continuously cutting the dividends
Could you please explain the difference between yield on price and stripped yield?
@andrea_ml Stripped yield is the yield after deducting the amount of accumulated dividend from the current price. Yield on price can be misleading for shorter durations, it's just easier to calculate,
Colorado Wealth Management Fund profile picture
@andrea_ml Confirming rbow's answer is solid.
@rbow thank you
50 billion in debt 😂
kablumas profile picture
@easyejm Thanks for this. I was thinking about buying but after looking at their financials I think it's a solid pass 😂 How can a serious investor recommend this is beyond me
Colorado Wealth Management Fund profile picture
@kablumas Not familiar with how mortgage REITs work? AGNC borrows money to buy agency MBS and then uses derivatives to hedge a significant portion of the interest rate risk. It seems scary to new investors, but we've been successfully navigating the sector for many years.
@Colorado Wealth Management Fund So, they lever up HUGE and rely on derivatives to not blow up.

This is a recipe for disaster.

Eventually, accidents happen.
Thanks for the recommendation. Own 3 of the 4. Again thanks.
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