10 Picks For 8.4% Or More

Summary

  • Easy article. 10 big dividends that look attractive.
  • 3 shares where the yield doesn’t offset the downside risks.
  • Each of the big yields we picked also has a good chance at capital gains within the next few years.
  • I do much more than just articles at The REIT Forum: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »

dinosaur many stack of coins

Just counting up my dividends

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

I’ve been working on educational articles for most of the day. They can be great, but they often take a bit longer. It’s time to toss out some quick ratings instead. We’ll go over a bunch of shares and my thoughts on them.

Annaly Capital Management (NLY): Price to book is too high. There are much better alternatives. I’ll go over this in more detail in some future article. The simple premise is that investors get far more for their dollar if they buy some of the other mortgage REITs. There is nothing sacred about NLY that merits this premium to book value.

Dynex Capital (DX): A much smaller peer for NLY that outperformed dramatically over prior periods. With so much volatility in the markets for stocks and bonds, the smaller size gives DX the ability to change allocations much faster. I think that’s a nice advantage in this environment. Combined with a much more attractive price-to-book ratio, DX is a superior pick.

ARMOUR Residential REIT (ARR): Monthly dividend appears to some investors. So does that massive 17.5% dividend yield. Those investors are overpaying for yield and positioning themselves for weaker returns. Price-to-book is lower than NLY, but decisions about how to manage the REIT through the past many years haven’t delivered great value to shareholders. Yield trap. It’s not a matter of if the dividend gets reduced, it’s a matter of when.

ARR-C (ARR.PC): This is a better way to have exposure to ARR. The dividend yield is much lower at 8.38%, but that 17.5% yield won’t last for all that long anyway. If ARR-C gets called several years in the future (not callable until 1/28/2025, but it wouldn’t make sense to call until rates are lower anyway), investors would get a nice capital gain. It’s not a likely scenario, but it’s possible. The likely scenario is that the investor simply continues to collect the yield.

CIM-A (CIM.PA): Big stripped yield at 9.49% with plenty of upside to call value. It’s a good deal. For investors who want the shares to be fixed-to-floating, check CIM-B, CIM-C, and CIM-D instead. I like those 3 as well. Compared to ARR-C, CIM-A’s bigger coupon rate makes it a more likely candidate for being called when rates dip. I’m not calling for yields to plunge tomorrow, but eventually they will come down. Inflation has most likely peaked. The producer price index most likely peaked. Year-over-year increases in market prices (which are different than inflation, primarily due to housing) most likely peaked quite a while ago. When rates come down at some point in the future, that 8% coupon rate on CIM-A creates an incentive for share to be called.

CHMI-A (CHMI.PA): Less impressive. I find CHMI-A to be a riskier pick than CIM-A. However, CHMI-A trades at $23.50 (vs. $21.15 for CIM-A). That means far less upside in the event of a call. CHMI-A also carries an 8.89% stripped yield compared to 9.49% for CIM-A. So, the investor in CHMI-A gets less upside if called and gets less income. Both shares are fixed rate, so we know the future dividend rate. The common shares of each REIT trade around a 6% to 8% discount to our estimate of current book value, so it isn’t like the market is simply in love with CHMI and hating CIM.

RITM-C (RITM.PC): An ideal pick for a scenario where rates remain elevated. If rates remain elevated, the yield on RITM-C will be outstanding. Shares only have a 4.969% spread over short-term rates when the floating rate kicks in (2/15/2025), but they only trade at $19.21. Thanks to that low share price, investors are getting far more shares. If we see short-term rates around 3.5% at that point, that will create a coupon rate of nearly 8.5%. Based on the low share price, the yield would be over 11% based on today’s price. I’m absolutely not campaigning against the other preferred shares from this REIT. I think they are good choices as well. RITM-A is a bit less appealing than RITM-B, RITM-C, and RITM-D. However, it’s still a pretty good pick. It just isn’t the best.

  • Good Picks: DX, ARR-C, CIM-A, CIM-B, CIM-C, CIM-D, RITM-A (but about 3% less attractive than related shares), RITM-B, RITM-C, RITM-D.
  • Bad Picks: NLY, ARR, CHMI-A

Does that mean we’re bullish on everything? No, it means twice I picked preferred shares from a REIT that had four preferred shares, so I ended up weighing in on all four. If I only mentioned one preferred share from CIM and one from RITM, I would’ve only had 4 picks.

I’d like to congratulate the market on relative pricing for RITM-B, RITM-C, and RITM-D. These shares range between 85.1% and 85.8% of our target values. All 3 shares are discounted, but the market is correctly evaluating the relative value of cash flows for each share.

The rest of the charts in this article may be self-explanatory to some investors. However, if you’d like to know more about them, you’re encouraged to see our notes for the series.

Stock Table

We will close out the rest of the article with the tables and charts we provide for readers to help them track the sector for both common shares and preferred shares.

We’re including a quick table for the common shares that will be shown in our tables:

Type of REIT or BDC

Residential Agency

Residential Hybrid

Residential Originator and Servicer

Commercial

BDC

AGNC

CIM

PMT

BXMT

MAIN

NLY

EFC

RITM

GPMT

CSWC

DX

NYMT

WMC

ARCC

ORC

MFA

RC

TSLX

ARR

MITT

TPVG

CHMI

AAIC

OCSL

TWO

GAIN

IVR

GBDC

EARN

SLRC

ORCC

PFLT

TCPC

FSK

PSEC

AINV

Let the images begin!

Residential Mortgage REIT Charts

Note: The chart for our public articles uses the book value per share from the latest earnings release. Current estimated book value per share is used in reaching our targets and trading decisions. It is available in our service, but those estimates are not included in the charts below.

Residential mortgage REIT price to book ratio chart

The REIT Forum

Residential mortgage REIT dividend yield chart

The REIT Forum

Residential mortgage REIT earnings yield chart

The REIT Forum

Commercial Mortgage REIT Charts

Commercial mortgage REIT price to book ratio chart

The REIT Forum

Commercial mortgage REIT dividend yield chart

The REIT Forum

Commercial mortgage REIT earnings yield chart

The REIT Forum

BDC Charts

BDC price to book ratio chart

The REIT Forum

BDC dividend yield chart

The REIT Forum

BDC earnings yield chart

The REIT Forum

Preferred Share Charts

Preferred share price comparison chart

The REIT Forum

Preferred share stripped yield comparison chart

The REIT Forum

Preferred share floating yield comparison chart

The REIT Forum

preferred share price comparison for higher risk shares

The REIT Forum

preferred share stripped yield comparison for higher risk shares

The REIT Forum

preferred share floating yield comparison for higher risk shares

The REIT Forum

Preferred Share Data

Beyond the charts, we’re also providing our readers with access to several other metrics for the preferred shares.

After testing out a series on preferred shares, we decided to try merging it into the series on common shares. After all, we are still talking about positions in mortgage REITs. We don’t have any desire to cover preferred shares without cumulative dividends, so any preferred shares you see in our column will have cumulative dividends. You can verify that by using Quantum Online. We’ve included the links in the table below.

To better organize the table, we needed to abbreviate column names as follows:

  • Price = Recent Share Price - Shown in Charts
  • BoF = Bond or FTF (Fixed-to-Floating)
  • S-Yield = Stripped Yield - Shown in Charts
  • Coupon = Initial Fixed-Rate Coupon
  • FYoP = Floating Yield on Price - Shown in Charts
  • NCD = Next Call Date (the soonest shares could be called)
  • Note: For all FTF issues, the floating rate would start on NCD.
  • WCC = Worst Cash to Call (lowest net cash return possible from a call)
  • QO Link = Link to Quantum Online Page

Ticker

Price

BoF

S-Yield

Coupon

FYoP

NCD

WCC

QO Link

P-Link

AGNCM

$21.75

FTF

8.04%

6.88%

8.89%

4/15/2024

$6.27

AGNCM

Prospectus

AGNCN

$24.65

FTF

7.21%

7.00%

8.63%

10/15/2022

$0.80

AGNCN

Prospectus

AGNCO

$22.31

FTF

7.40%

6.50%

9.40%

10/15/2024

$6.36

AGNCO

Prospectus

AGNCP

$21.00

FTF

7.41%

6.13%

9.63%

4/15/2025

$8.22

AGNCP

Prospectus

NLY-F

$24.16

FTF

7.21%

6.95%

8.57%

10/14/2022

$0.91

NLY-F

Prospectus

NLY-G

$21.95

FTF

7.42%

6.50%

8.50%

3/31/2023

$3.86

NLY-G

Prospectus

NLY-I

$23.08

FTF

7.33%

6.75%

8.97%

6/30/2024

$4.87

NLY-I

Prospectus

ARR-C

$20.88

8.38%

7.00%

8.38%

1/28/2025

$8.20

ARR-C

Prospectus

DX-C

$22.52

FTF

7.79%

6.90%

9.85%

4/15/2025

$7.22

DX-C

Prospectus

FBRT-E

$19.64

9.75%

7.50%

9.75%

10/14/2022

$5.83

FBRT-E

Prospectus

EFC-A

$21.87

FTF

7.85%

6.75%

9.84%

10/30/2024

$7.01

EFC-A

Prospectus

RITM-A

$21.84

FTF

8.71%

7.50%

10.54%

8/15/2024

$6.93

RITM-A

Prospectus

RITM-B

$20.84

FTF

8.67%

7.13%

10.85%

8/15/2024

$7.74

RITM-B

Prospectus

RITM-C

$19.21

FTF

8.42%

6.38%

10.88%

2/15/2025

$9.80

RITM-C

Prospectus

RITM-D

$20.70

FTF

8.58%

7.00%

12.03%

11/15/2026

$11.76

RITM-D

Prospectus

PMT-A

$23.00

FTF

8.86%

8.13%

9.93%

3/15/2024

$5.04

PMT-A

Prospectus

PMT-B

$23.27

FTF

8.62%

8.00%

9.98%

6/15/2024

$5.23

PMT-B

Prospectus

PMT-C

$18.88

8.97%

6.75%

8.97%

8/24/2026

$12.77

PMT-C

Prospectus

AIC

$24.57

Bond

6.89%

6.75%

6.89%

10/14/2022

$0.55

AIC

Prospectus

AAIN

$24.35

Bond

6.23%

6.00%

6.23%

8/1/2023

$2.15

AAIN

Prospectus

CIM-A

$21.15

9.49%

8.00%

9.49%

10/14/2022

$4.01

CIM-A

Prospectus

CIM-B

$21.40

FTF

9.38%

8.00%

10.62%

3/30/2024

$6.68

CIM-B

Prospectus

CIM-C

$20.05

FTF

9.70%

7.75%

10.03%

9/30/2025

$10.85

CIM-C

Prospectus

CIM-D

$20.42

FTF

9.83%

8.00%

10.63%

03/30/2024

$7.66

CIM-D

Prospectus

Second Batch:

Ticker

Price

BoF

S-Yield

Coupon

FYoP

NCD

WCC

QO Link

P-Link

TWO-A

$23.17

FTF

8.91%

8.13%

9.79%

04/27/2027

$11.48

TWO-A

Prospectus

TWO-B

$21.62

FTF

8.96%

7.63%

10.13%

07/27/2027

$12.91

TWO-B

Prospectus

TWO-C

$20.98

FTF

8.78%

7.25%

10.02%

1/27/2025

$8.56

TWO-C

Prospectus

MFA-B

$19.36

9.72%

7.50%

9.72%

10/14/2022

$5.71

MFA-B

Prospectus

MFA-C

$18.61

FTF

8.76%

6.50%

11.61%

3/31/2025

$10.45

MFA-C

Prospectus

GPMT-A

$21.77

FTF

8.18%

7.00%

10.63%

11/30/2026

$10.88

GPMT-A

Prospectus

CHMI-A

$23.50

8.89%

8.20%

8.89%

10/14/2022

$1.94

CHMI-A

Prospectus

CHMI-B

$22.59

FTF

9.31%

8.25%

10.05%

4/15/2024

$5.95

CHMI-B

Prospectus

IVR-B

$20.89

FTF

9.31%

7.75%

10.15%

12/27/2024

$8.49

IVR-B

Prospectus

IVR-C

$20.20

FTF

9.31%

7.50%

10.63%

9/27/2027

$14.20

IVR-C

Prospectus

NYMTM

$21.93

FTF

9.15%

7.88%

11.27%

1/15/2025

$8.00

NYMTM

Prospectus

NYMTN

$20.34

FTF

10.04%

8.00%

11.25%

10/15/2027

$15.16

NYMTN

Prospectus

NYMTL

$20.00

FTF

8.75%

6.88%

11.97%

10/15/2026

$12.31

NYMTL

Prospectus

NYMTZ

$18.91

9.44%

7.00%

9.44%

1/15/2027

$13.97

NYMTZ

Prospectus

AAIC-B

$21.13

8.46%

7.00%

8.46%

10/14/2022

$4.32

AAIC-B

Prospectus

AAIC-C

$21.88

FTF

9.66%

8.25%

10.46%

3/30/2024

$6.66

AAIC-C

Prospectus

MITT-A

$19.05

10.88%

8.25%

10.88%

10/14/2022

$6.06

MITT-A

Prospectus

MITT-B

$18.14

11.08%

8.00%

11.08%

10/14/2022

$6.97

MITT-B

Prospectus

MITT-C

$18.17

FTF

11.06%

8.00%

13.47%

9/17/2024

$10.80

MITT-C

Prospectus

ACR-C

$22.53

FTF

9.77%

8.63%

10.42%

7/30/2024

$6.79

ACR-C

Prospectus

ACR-D

$20.71

9.70%

7.88%

9.70%

5/21/2026

$11.80

ACR-D

Prospectus

Strategy

Our goal is to maximize total returns. We achieve those most effectively by including “trading” strategies. We regularly trade positions in the mortgage REIT common shares and BDCs because:

  1. Prices are inefficient.
  2. Long-term, share prices generally revolve around book value.
  3. Short-term, price-to-book ratios can deviate materially.
  4. Book value isn’t the only step in analysis, but it is the cornerstone.

We also allocate to preferred shares and equity REITs. We encourage buy-and-hold investors to consider using more preferred shares and equity REITs.

Performance

We compare our performance against 4 ETFs that investors might use for exposure to our sectors:

Seeking Alpha best service

The REIT Forum

The 4 ETFs we use for comparison are:

Ticker

Exposure

MORT

One of the largest mortgage REIT ETFs

PFF

One of the largest preferred share ETFs

VNQ

Largest equity REIT ETF

KBWY

The high-yield equity REIT ETF. Yes, it has been dreadful.

When investors think it isn’t possible to earn solid returns in preferred shares or mortgage REITs, we politely disagree. The sector has plenty of opportunities, but investors still need to be wary of the risks. We can’t simply reach for yield and hope for the best. When it comes to common shares, we need to be even more vigilant to protect our principal by regularly watching prices and updating estimates for book value and price targets.

Ratings:

  • Bullish on DX, ARR-C, CIM-A, CIM-B, CIM-C, CIM-D, RITM-A (but about 3% less attractive than related shares), RITM-B, RITM-C, RITM-D.
  • Neutral on CHMI-A (materially less attractive than peers, but not quite bad enough to get a bearish outlook).
  • Bearish on NLY, ARR

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This article was written by

Author of The REIT Forum
The #1 REIT Service For Those Targeting Strong Total Returns
You want to be on The REIT Forum because it is the #1 REIT research service on Seeking Alpha measured by returns. Period. See our Tipranks page. How did we get there? We did a better job of managing risk and discovering opportunities. We didn’t jump into trashy high-yield equity REITs with the rest of the crowd. We cover securities for trading and securities for the buy-and-hold investor. We are clear about the difference and that enabled us to perform better since inception and better in 2020.


Securities for the buy-and-hold investor generally carry much lower risk. If we enter a high-risk position, we plan to capitalize on a change in the valuation. We monitor those positions very carefully, rather than hoping everything turns out well over the next several years. That’s why we have so few losses in our investing.


We post our portfolio for you. You also get real-time alerts on every trade we place. Our reasoning for placing a trade is explained in clear English. You can even see the exact trades with the images we include from our stock accounts. We don’t offer you several different “portfolios”, instead, we show you exactly what we own, when we bought it, and how we are doing in that position. We make it simple for investors to follow our strategy.


You’ll find several reports on The REIT Forum that don’t get posted to the public side of Seeking Alpha. Many of our public reports are dramatically reduced versions of subscriber articles. If you enjoy our public articles, you’ll love the content we keep for subscribers.


Disclosure: I/we have a beneficial long position in the shares of AGNCO, CIM-A, ARR-C, DX-C, RITM-D, AGNCP, MFA-C, NYMTZ, NYMTL, MFA-B, PMT-C, RITM, SLRC, AAIC, MFA, GPMT, 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.

Additional disclosure: 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.

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