Published Wed, 23 Oct 2019 08:35:00 -0400 on Seeking Alpha
Co-produced with Trapping Value and PendragonY
Mortgage REITs have given investors a hard time of late. The sector has been rife with dividend cuts and dwindling book values. Investors have been fleeing the sector in droves and the revulsion is palpable. But that stampede has also created a nice opportunity. We look today at two large-payout mortgage REIT ETFs and explain why investors should be looking to add these here. Income investors have a great opportunity!
Business Model & Recent Struggles
Mortgage REITs help provide essential liquidity for the real estate market by investing in residential and commercial mortgages, as well as residential mortgage-backed securities or RMBS and commercial mortgage-backed securities or CMBS. While traditional equity REITs (aka property REITs or eREITs) invest in actual real estate, mortgage REITs provide the backbone financing directly or indirectly to those investments. The business model can be summed in two phrases. Borrow Short. Lend Long.
That means that mortgage REITs borrow at the short end of the curve via floating rates tied to LIBOR or similar benchmarks and lend at the long end of the curve. That has not worked out very well for them recently as the yield curve has flattened.
In that aspect Mortgage REITs sensitivity to the yield curve steepness or "spread" is very similar to that of banks and other financial institutions. We have seen all the big banks complain about falling net... Read more
|Stock name||Last trade||P/E||Earnings/Share||Dividend/Share||Dividend yield|
|ANNALY CAPITAL MANAGEMENT||8.60||0.0||-3.32||1.20||14.00|
|AMERICAN CAPITAL AGENCY||15.64||0.0||-1.54||1.92||12.21|
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