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High Yield Investing: Negative Interest Rates And mREITs With Yields +12%

Published Sun, 15 Sep 2019 09:35:00 -0400 on Seeking Alpha

Co-produced with Beyond Saving and PendragonY for High Dividend Opportunities
Many income investors like to get very high yields by investing in the morgtate REIT sector, or the mREIT sector. This is a very juicy sector with many mREITs currently yielding well over 11%.
A frequent question we have been receiving from members is the theoretical impact of negative interest rates on mREITs like Annaly Capital Management (NLY), AGNC Investment Corp (AGNC) and Dynex Capital (DX). These are investments with very juicy yields. NLY currently yields +12%, AGNC yields 13%, and DX yields 12.7%.
In our article today, we will focus on Annaly Capital (NLY), which is one of our favorite mREIT picks and how it will be impacted by lower interest rates. We recently wrote on NLY in a report here, explaining why NLY could double in price if we hit a recession.
The first thing to remember is that lower interest rates are great for agency mREITs. mREITs want lower rates- the lower the better. Why? Borrowing costs.
Source: NLY 10-Q
Last quarter, NLY was borrowing $105 BILLION at a weighted average rate of 2.69%. That is $2.82 billion in annualized interest that NLY pays. Suppose instead of paying 2.69%, interest rates were negative and they could borrow at -0.25%: NLY would be getting paid $262 million. What was once their largest expense, would suddenly become a source of profit.
The Curve
Negative interest rates do not change the nature of the yield curve.
If we... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
NEW RESIDENTIAL INVESTMENT 14.98   18.0 0.83 2.00 13.28
AMERICAN CAPITAL AGENCY 15.64   0.0 -1.54 1.92 12.21
DYNEX CAPITAL 15.16   0.0 -10.26 1.80 12.06


Older articles featuring New Residential Investment (NRZ):
38 Equities Boosted Dividends 6/8-6/29/20 Despite Uncertainties
Annaly Capital's Dividend, BV, And Valuation Vs. 20 mREIT Peers - Part 2 (Includes Q3-Q4 2020 Dividend Projection)
New Residential Investment Corp: 100% Dividend Increase Is No Joke
Dividends Are Back
Annaly Capital's BV, Dividend, And Valuation Vs. 17 mREIT Peers - Part 1 (Post Q1 2020 Earnings - Very Attractive...
Dividend Cuts And Overdue Rent: REIT Earnings Recap
REITs Rally Despite Mounting Dividend Cuts
5%+ Dividend Yield Portfolio: Bracing For The Retest (April 2020 Review)
Helicopter Fed: Attractive mREITs, Bond CEFs, Huge Yields, Discounted Prices
The Retirees' Dividend Portfolio: John And Jane's March Taxable Account Update