Investing

Mortgage REITs Trying To Recapture Lost Ground (NLY, AGNC, HTS, CIM, IVR, MORT)

The mortgage REIT sector is trying to make a comeback after many lost 10% or more of their value from last week to the start of this week as many issues are hanging over it.  A lack of refinancings, how ‘operation twist’ affects the yield curve, a poor housing market, and the fear of the future tax status are just some of the overhanging issues here.  The good news, as Bank of America Merrill Lynch noted in its key sector downgrade one month ago, is that the tax issue is not likely to come to a head in the immediate future.  The bad news is that the last week has not been kind to a sector where investors reach for the highest dividend yields possible.

It was just over one-month ago that we noted how BofA/Merrill Lynch downgraded 6 of the 12 major mortgage REIT stocks to Neutral from Buy.  The big call at the time was that the tax overhang might make these trade closer to book value.  We are seeing some small indicated gains right around the open this morning after many have continued to bounce.  We have to refer to an “implied dividend” rather than a true dividend because the payouts usually depend mostly on the earnings from quarter to quarter and earnings in mortgage-REITs are difficult to predict.

Annaly Capital Management, Inc. (NYSE: NLY) is trading up by 0.5% after closing at $15.68 and after breaking under $15.00 this week.  Still, the 52-week range is $14.05 to $18.79.  The latest implied dividend yield: 15.2%.

American Capital Agency Corp. (NASDAQ: AGNC) is up 0.3% after a $26.38 close but shares were down close to $23.00 at the lows this week after having been above $27.00 last week.  The 52-week range is $22.03 to $30.76 and the implied dividend yield is now north of 20%.

Hatteras Financial Corp (NYSE: HTS) is flat at $23.90 and shares broke under $23.00 earlier this week during the peak of the panic.  This stock was close to $25.50 last week and the 52-week range is $22.33 to $31.98.  The implied dividend yield is almost 17%.

Chimera Investment Corporation (NYSE: CIM), which we call the vulture mortgage REIT, is up 0.4% at $2.58  and the 52-week range is $2.38 to $4.36.  The implied dividend on last look was close to 20%.

Invesco Mortgage Capital Inc. (NYSE: IVR) is up over 1% in early trading at $14.11, and this went well under $13.00 early on Tuesday and the 52-week range is $12.55 to $24.07.  The implied dividend is now close to 23%.

The fairly new Market Vectors Mortgage REIT Income ETF (NYSE: MORT) is still down around $21.40 and shares briefly broke under $20.00 this week.  We only have one real dividend payment so far, but the implied dividend on this ETF is close to 13%.  The post-launch trading range is $19.83 (yesterday) to $26.50 and that should show how the whole sector has been slammed so hard.

Again, these dividend yields are simply “implied” because they can rise and fall and picking the trend is hard to identify from REIT to REIT.

JON C. OGG