Mortgage REIT stocks slump after Invesco Mortgage cuts dividend

Sep. 29, 2022 5:31 PM ETMFA Financial, Inc. (MFA), TWO, NLY, ARR, CHMI, MITT, ORC, CIM, US10Y, REM, IVRBy: Liz Kiesche, SA News Editor54 Comments

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With turmoil in the bond markets, mortgage REIT stocks tanked on Thursday, following Invesco Mortgage (NYSE:IVR) announced a dividend cut after Wednesday's market close.

iShares Mortgage Real Estate Capped ETF (BATS:REM) dropped 6.3% on Thursday and is down 27% in the past month. Investors still sorting out the effects of the Federal Reserve's hawkish policy, which is pushing up mortgage rates.

The widely watched 10-year Treasury yield (US10Y) rose 5 basis points on Thursday to 3.788% and had topped 4% on Wednesday. In the past month, its yield has increased by 52 basis points.

On Wednesday, Invesco Mortgage (IVR) chopped its dividend by 28% to retain additional capital and further improve its capital structure, the company said. IVR stock slid 10% on Thursday.

BTIG analyst Eric Hagen sees MFA Financial's (NYSE:MFA) dividend vulnerable given liquidity risk, but doesn't expect that it would need to suspend its dividend like it did at the beginning of the pandemic. MFA shares dropped 9.7%.

Several mortgage REITs also sank in the double digits — Chimera Investment (NYSE:CIM), -14%, Orchid Island Capital (NYSE:ORC) -13%, AG Mortgage Investment (NYSE:MITT), -14%, Cherry Hill Mortgage Investment (NYSE:CHMI), -13%.

Others in the high single digits include: Armour Residential REIT (NYSE:ARR) -9.9%, Annaly Capital Management (NYSE:NLY) -9.9%, Two Harbors Investment (NYSE:TWO) -9.9%.

Jones Research analyst Jason Stewart keeps a Hold rating on Invesco Mortgage (IVR) as he sees earnings estimates continuing to cover its dividend. He also expects modest net interest margin compression in Q3 2022 due to an increase in the weighted average cost of funds.

SA contributor Trapping Value recently upgraded Annaly Capital (NLY) to Hold from Sell and explains the volatile market's effect on the stock.

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