American Capital Agency Corp. (AGNC), Annaly Capital Management, Inc. (NLY), Two Harbors Investment Corp (TWO): Forget the Ugly Past and Look at the Bright Future of These Stocks

Sustainable future dividends and anticipated higher income

You can expect Annaly Capital Management, Inc. (NYSE:NLY) to report 17% higher net interest income if the rates climb 50 bps. Therefore, the least you can expect is Annaly to maintain its dividends. Since Annaly Capital Management, Inc. (NYSE:NLY) has a cash dividend coverage ratio of 1 times, it needed the widening of mortgage spreads. Therefore, if the Fed decides to cool down its MBS purchases, you can expect Annaly to report higher income.

Re-positioning will work out

While I believe American Capital Agency Corp. (NASDAQ:AGNC)’s current investments will face headwinds in an increasing interest rate environment, its management has made efforts to re-position its investment portfolio after the first-quarter results, which took a chunk away from its book value. After the re-positioning, you can expect the company to perform better during an increasing interest rate environment, which is highly likely in the coming future. American Capital Agency Corp. (NASDAQ:AGNC) has a current cash dividend coverage ratio of 1.2 times. I feel the re-positioning will further boost the company’s dividend paying ability.

Stable returns due to a diverse asset base

Two Harbors Investment Corp (NYSE:TWO) is know to posses a well known asset portfolio. Besides owing MBS that generate interest income, the company has investments in real estate facilities that generate rental income. Therefore, during a declining interest rate environment, the company can rely on its rental income to provide stable returns. Besides, you can expect the company to report around 6.6% higher interest income if the rates climb 50 bps. This is because its MBS holdings are positioned to benefit from a hike in the general interest rate environment.

Foolish takeaway

The rising mortgage rates, combined with a decline in the refinance activity as reported by the Mortgage Bankers Association, is a sign of relief for the mREITs sector, particularly the aforementioned three companies. Therefore, investors looking to increase their regular income should consider this trend as an investment opportunity in the aforementioned stocks.

The article Forget the Ugly Past and Look at the Bright Future of These Stocks originally appeared on Fool.com and is written by Adnan Khan.

Adnan Khan has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Adnan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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