Published Mon, 16 Mar 2020 23:42:15 -0400 on Seeking Alpha
High yields are going on sale.
Preferred shares got hammered in the mortgage REIT sector.
Prices should continue to swing wildly as the market sees high levels of volatility.
This research report was produced by The REIT Forum with assistance from Big Dog Investments.
The market has gone haywire.
Spreads between MBS and Treasuries increased significantly, which can have a negative impact on book values. However, we’re seeing common shares trading down 10% to 25% on the day. Remarkably, preferred shares are showing similar declines. In some cases there are preferred shares falling by over 30%. The case we will be talking about today is a preferred share from Two Harbors (TWO).
New Positions - TWO-E
We picked up 663 shares of TWO-E (TWO.PE) at Fidelity:
They have already fallen a little further:
Source: The REIT Forum
We’re looking at a stripped yield in excess of 11% for a preferred share. That’s remarkably high. TWO does take on credit risk and does own MSRs, also known as mortgage servicing rights, which are subject to prepayment risk. However, their overall portfolio was built to reduce volatility in book value. That’s great for the preferred share investor.
The power of volatility
While trying to get some content from The REIT Forum to the public, the market is taking wild swings. In less than 24 hours, TWO-E has rallied almost $3.00:
TWO-E is still within our strong buy range, but so is just about every preferred share that we cover. We’re mostly looking to get into preferred shares with a risk rating of 1 or 2. However, we are willing to purchase higher-risk preferred shares when great opportunities arise.
Preferred shares are currently on sale. We believe now is a great time to look at getting more preferred shares in your portfolios.
We will now dive into the metrics for TWO-E and how we evaluate shares.
• Our current rating for TWO-E:
... Read more
|Stock name||Last trade||P/E||Earnings/Share||Dividend/Share||Dividend yield|
|TWO HARBORS INVESTMENT||13.28||0.0||-2.81||1.60||12.02|
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