6 Commercial Mortgage REITs With Huge Dividends Can Benefit From Rising Interest Rates

One main reason that Americans are suffering from the worst inflation rate in 40 years is that the Federal Reserve waited way too long to finally start raising interest rates from what was effectively zero. That mistake, which Treasury Secretary Janet Yellen finally admitted recently, combined with massive, and in many cases wasteful, government spending has beleaguered consumers struggling to fill gas tanks and pay for groceries.

One industry that may benefit from the rising interest rates is the commercial real estate (CRE) mortgage real estate investment trusts (REITs). Until recently, the specter of rising rates was a negative, after years of lower pandemic-driven rates. The analysts at Raymond James think the tide has turned for the group, and noted this in a recent research report:

Over the past two years, the CRE REIT companies’ earnings have benefited from in-the-money LIBOR floors in pre-COVID vintage loans. As a result, rate increases year-to-date have largely been a headwind for portfolio returns. However, we believe the second quarter is the inflection point. Given portfolio characteristics at March 31 and quarter-to-date rate increases, we believe higher rates are now a tailwind for the majority of these companies, and we expect higher rates to be a tailwind for all ten companies in our coverage before year-end given the current interest rate outlook.

We screened the 10 companies in the firm’s coverage universe that were either Strong Buy or Outperform rated, searching for those paying the highest dividends. We found six that look like solid ideas for growth and income investors searching for reasonably safe total return. It is important to remember, though, that no single analyst report should be used as a sole basis for any buying or selling decision.

ARES Commercial Real Estate

Investors can acquire shares of this top company before its next payment date. ARES Commercial Real Estate (NYSE: ACRE) is a specialty finance company originating and investing in CRE loans and related investments in the United States. It provides a range of financing solutions for the owners, operators and sponsors of CRE properties.

The company originates senior mortgage loans, subordinate debt products, real estate preferred equity investments, mezzanine loans and other CRE investments, including commercial mortgage-backed securities (CMBS).

Raymond James report said, “Given benefits of higher rates, we expect ARES Commercial Real Estate to continue paying the quarterly supplemental dividend for the foreseeable future.”

Investors receive a 9.00% distribution. The $16.50 Raymond James price target is the same as the Wall Street consensus figure. The stock closed on Thursday at $14.66.

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