New Are The Juicy Yields Of Mortgage REITs Worth The Risk? | FAST Graphs

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Mortgate REITs.
Although interest rates have risen since the pandemic started, they continue at levels that would be considered historically low. Consequently, investors seeking yield or income from their investments are struggling to find any that are paying attractive rates. Most blue-chip dividend growth stocks are trading at extremely high valuations which have driven their yields below what many investors living off their income would need. For example, the 1.42% current yield of the S&P 500 index is one of its lowest since the irrational exuberant period of 1999 and 2000.

Low interest rates have an impact on the return expectations from both fixed income instruments and equities. When interest rates rise, previously issued fixed income instruments like bonds will drop in value. However, newly issued fixed income becomes more attractive because of its higher rates which more aggressively compete with equities which tends to drive their prices down. Consequently, rising interest rates provide a double edge sword that cut the returns of both fixed income and equities.

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Nevertheless, with scant options at their disposal, investors seeking yield can easily be enticed by high yielding instruments such as mortgage REITs (mREITs). With this video I am going to cover the top 10 mortgage REITs by market cap and discuss whether their 7% to 9% yields are attractive or too risky. I will further reveal that although statistically these mortgage REITs appear attractive and even attractively valued, but statistics alone do not tell the whole story.

In the video I will be going over these mortgage REITs: Two Harbors Investment (TWO), Apollo Commercial Real Estate (ARI), Arbor Realty Trust (ABR), Chimera Investment Corp (CIM), Hannon Armstrong Sustainable (HASI), Blackstone Mortgage Trust (BXMT), New Residential Investment (NRZ), Starwood Property Trust (STWD), AGNC Investment Corp (AGNC), Annaly Capital Management (NLY)

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28 comments

  1. Thank you Chuck for another amazing video. So excited everytime I see a notification of a new video, thank you for your time! For a new investor who is not near retirement, I've learnt I should be combining growth stocks and dividend growth stocks, but what are your thoughts regarding using these high yields like a "bank" to get the dividends and use the dividends to invest further in growth stocks? I'm not sure how else one could utilise these types of stocks if one is not retired and dependent on income. Or should young investors be avoiding these altogether.

  2. Excellent info Chuck! Hope your fanboys is paying attention to the risks involved herein.

  3. Is HASI really a mortage REIT? They invest in renewable energy sector. And shouldnt you use FFO instead of adjusted earnings. with these REITS?

  4. Hi Chuck! Thanks for the great overview! Simply put, this is why I stay away from Mortgage Reits. I'd rather own companies like LUMN, that "can" store value and earn a decent dividend, than invest in Mortgage Reits. In addition to that, I don't understand them that deeply to invest in them, so I'd rather stay away from companies and businesses that I don't understand and focus on what is in my circle of competence.
    On the matter of Fast Graphs, it is just a great tool to visually represent numbers, in such a way, that a blind man can see the difference.
    Love the work, waiting on construction / building materials sector review.
    Stoyan

  5. Bought NLY before the ex-date in March 2020. Got 25% in dividends and 80% in share price appreciation. I only invest if they are significantly undervalued because the key here seems to be to have a good entry point.

  6. Surprised you didn't mention NLY and a few others I can't think of off the top of my head.

  7. My cost basis on NLY is about $9. Not much growth, but I'm happy to pocket the 9% dividend every year.

  8. Ouch. In my Fidelity stock screener, ABR is about the only one that the analysts like.

  9. Thank you for breaking down and explaining some of the most confusing forms of REITs. Learned a lot today.

  10. I picked up shares of ABR for $3.96 during last year's flash crash. Yield on cost is 34.3%. Share price hit $19 as of today; perhaps I should sell a portion of my investment.

  11. Well, i wanna make that clear – chuck carnevale is a really cool guy! Salute from good old germany 👍

  12. arbor is in my watchlist but with this video I will check the metrics with more attention to risk. Love your videos. Thank you.

  13. I've got AGNC, but didn't consider it to be long term because of the capital depreciation, but it was hugely discounted last year and has recovered quite well. Soon it will be time to sell and move into something that hasn't had such a poor capital protection history. Dividend isn't everything. Thank you.

  14. Thanks Chuck as always for your very informative video. I'm wondering what you think will happen to the revenues of these mREITS once the FED raises interest rates? Is it good or bad for them? Can they pass on the interest rate hikes like the banks, insurers?

  15. Thank you for the excellent video, sir. Very insightful. Long AGNC. Formerly long NLY and CIM. Bought AGNC under $14 last year so holding for now, but uncertain about their payout consistency going forward.

  16. Subscriber request going along with REITS – can you do Realty Income O, WP Carey, Iron Mountian, American Tower Corp, Digital Realty Trust?
    All of these have recently been called a good buy, I would like to see you view on them and Fast Graphs 2.0 in action!

  17. Keeps me away from this sector as I can not see how their business model can improve. Nevertheless: I learned something to observe today. Thanks for that Chuck!

  18. Never heard of Hannon Capital.Very interesting Company set the stock on my watchlist.When the Prize gets right i consider to buy it.Thanks Chuck

  19. The answer is no. I would rather own Singapore REITs. They have a mandatory 50% debt to equity ratio. The majority of the REITs in the US have too much debt.

  20. really interesting topic, I am still wondering why the dividends are so out of favor, and many other sectors like conservative Pharma sector isnt trendy at all. stunning.