Forget Rentals: 5 High-Yield REITs for Stress-Free Passive Income
Some mortgage REITs have quietly paid the same dividend through recessions, rate shocks, and market chaos, while others with even bigger yields are one bad quarter away from a cut. Knowing which is which changes everything.
This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.
Mortgage REITs hold up in two tough settings. When inflation pushes rates higher, new mortgage assets pay bigger coupons. When a recession hits, government-backed collateral and heavy hedging help keep cash coming in. What separates the safer names is whether earnings actually cover the dividend. Annaly Capital Management (NYSE:NLY) sets the standard here: its earnings available for distribution beat its dividend for the ninth consecutive quarter. Below are five ultra-high-yield names, ranked from the strongest coverage to the one that needs the closest watch.
Annaly Capital Management: A Dividend Raise Backed by Nine Quarters of Coverage
Annaly yields 15.6% on a forward annual payout of $3 per share, with the stock at $18.29. Management raised the quarterly dividend to $0.75 from $0.70 after second-quarter earnings available for distribution (EAD) came in at $0.79 per share, ahead of the $0.75 consensus.
Dividend safety: For a mortgage REIT, EAD does the job that free cash flow does for an industrial company. At Annaly, it has covered the payout for nine straight quarters. The balance sheet is run conservatively: economic leverage of 5.6 times, a 97% hedge ratio, and $8 billion in unencumbered assets, including $5.5 billion in cash and unencumbered agency MBS. Book value rose to $20.15 per share. The long-term dividend record includes several cuts. The payout held at $0.65 through 2023 and 2024 before rising to $0.70 and then $0.75.
Bull case: Annaly spreads its capital across agency MBS (57%), residential credit (22%), and mortgage servicing rights (21%). That mix gives protection on both fronts. Government agencies back agency bonds, so borrower defaults in a downturn don’t hit them. Servicing rights carry what management called “virtually no prepayment risk.” The agency portfolio’s weighted average coupon rose to 5.11%, so higher rates are already adding to income. On the earnings call, management said: “So generally, we feel very good about dividend coverage on a go-forward basis.”
Risk: The shares fell 16.62% over the past month. Even when the dividend holds, the share price moves with mortgage spreads and rate expectations.
Rithm Capital: The Widest Coverage Cushion in the Group
Rithm Capital (NYSE:RITM) yields 11.5%, the lowest yield here, on an annual payout of $1 per share. The stock trades at $8.66.
Dividend safety: Second-quarter distributable earnings reached $0.60 per diluted share, beating the $0.50 consensus and easily covering the $0.25 quarterly dividend. Shareholders’ equity stands at $9.05 billion against $54.1 billion in total assets. The stock trades at 0.764 times book and a forward P/E of 4x. The dividend has been $0.25 every quarter since 2022. That came after a cut to $0.05 in 2020 and a steady rebuild.
Bull case: Rithm earns money from several businesses: originating and servicing loans, managing assets and lending, so it depends far less on interest spreads than a pure bond portfolio does. Assets under management reached $61 billion. Newrez posted a 22% annualized operating ROE, and Genesis Capital had a record quarter with $1.9 billion in originations, up 52% year over year. Rithm’s chief executive said in the second-quarter release that “every pillar of our platform is performing.” Analysts agree: four rate it a Strong Buy, seven a Buy, and none a Hold, with a consensus price target of $13.15.
Risk: Swings in servicing-rights values can wipe out GAAP earnings. For example, Rithm’s GAAP net income fell to $0.04 per share after $194.50 million in servicing-rights mark-to-market losses as rates declined.
AGNC Investment: 75 Straight Months of the Same Paycheck
AGNC Investment (NASDAQ:AGNC) yields 16.4% and pays $0.12 per share monthly ($1.44 a year), with the stock at $8.66.
Dividend safety: Second-quarter EPS of $0.40 beat the $0.38 consensus and topped the 36 cents per share in dividends declared for the quarter. Management marked the 75th consecutive monthly dividend payment of 12 cents per share. Leverage averaged 7.4 times tangible equity, backed by $7.5 billion in unencumbered cash and agency MBS. Tangible book value rose 2.4% to $8.58. Over the long run, the monthly rate has come down from $0.22 in 2014 to today’s level.
Bull case: AGNC owns only agency MBS, which are backed by government agencies, so a recession doesn’t raise credit losses on the portfolio. The net interest spread stands at 2.00%. The company’s chief executive tied current returns directly to the dividend: “you’re getting ROEs when you’re leveraging them the way we leverage them at seven or seven and a half times, probably in the 15 to 17% range. So that aligns really well with the economics of our dividend.”
Risk: Book value can fall fast when spreads widen. In the first quarter, tangible book value dropped 5.6%, and the economic return was −1.6% after geopolitical shocks.
Starwood Property Trust: A $0.48 Dividend That Held Through 2020
Starwood Property Trust (NASDAQ:STWD) yields 14.8% on an annual payout of $1.92, with the stock at $12.95.
Dividend safety: No company here has a steadier payout record. Starwood has paid $0.48 every quarter from 2014 through its latest payment, with no cuts, including all four payments in 2020. Second-quarter distributable earnings came in at $0.40 per share, in line with estimates. Shareholders’ equity totals $6.50 billion. The average maturity of corporate debt was extended to 3.7 years, and the company repurchased $30 million of stock in the first half of the year. Shares trade at 0.837 times book and a forward P/E of 10x.
Bull case: The $17.3 billion commercial loan book gives Starwood scale. The company had deployed $6.7 billion at double-digit returns on equity through July. Chief Executive Barry Sternlicht said in the second-quarter release: “We expect to resolve nearly $900 million of underperforming assets by year-end or shortly thereafter, returning the trapped equity to higher use cases.” Analysts’ price target is $19.88.
Risk: Distributable earnings currently fall short of the $0.48 dividend. That gap needs to close as legacy assets are resolved, and the stock is down 21.22% year to date.
PennyMac Mortgage Investment Trust: The Biggest Yield Demands the Most Scrutiny
PennyMac Mortgage Investment Trust (NYSE:PMT) yields 20.3% on an annual payout of $1.60, with the stock at $8.03.
Dividend safety: Coverage is the weakest in this group. Second-quarter EPS of $0.23 missed the $0.30 consensus and fell short of the $0.40 quarterly dividend. Management’s projected run rate of about $0.33 per quarter is still below the payout. Debt-to-equity leverage is 12.4x, liquidity is $517 million, and book value slipped to $14.83. The stock trades at 0.58 times book. The dividend was cut from $0.47 to $0.25 in 2020, then reset to $0.40 in 2023.
Bull case: PennyMac is selling $13 billion in unpaid principal of low-coupon agency servicing rights. It is redeploying that capital into private-label securitization bonds that target low- to mid-teens returns on equity. The fair value of its subordinate bonds rose 16% quarter over quarter to $853 million. The company’s chief executive described the goal as an effort to “strengthen the overall earnings power of our portfolio.”
Risk: If the shift into private-label credit takes longer than planned, a dividend cut is possible.
Coverage Separates Durable Income From Yield Traps
Annaly and Rithm offer the cleanest coverage, with earnings above their dividends and diversified businesses that can handle both rising and falling rates. AGNC brings government-backed collateral and 75 months of identical monthly checks. Starwood’s payout has held for more than a decade but now depends on resolving legacy loans, and PennyMac’s 20.3% yield only holds up if its new strategy closes the earnings gap. A double-digit yield usually means the market suspects something, and we laid out the seven warning signs that confirm a cut is coming in a free dividend trap guide.
Contact [email protected] for any questions or corrections.
Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad, diverse career, including a stint as creative services director at an NBC affiliate in Austin, Texas, gives him unique insight into the financial industry.
Lee Jackson's journey in the financial industry spans more than 30 years, including nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career spanned pivotal sell-side Wall Street events, from the dot-com rise and bubble to the Long-Term Capital Management debacle, 9/11, and the Great Recession of 2008. This reflects his resilience and adaptability amid market volatility.
Lee Jackson’s practical financial industry experience, gained through a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing across various platforms. This unique combination allows him to shed light on the intricacies of Wall Street in a way only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.
Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.
