An 18% Yield Makes Two Harbors Investment Corp (TWO) the Best Buy

AG Mortgage Investment Trust Inc (NYSE:MITT) is a relatively new mortgage REIT. At the end of the third quarter around 80% of the company’s portfolio was invested in Agency securities, followed by non-Agency at 15%. Besides, the company has invested in commercial MBS (3% of portfolio) and asset backed securities. The company reported a surge in its net interest margin during the third quarter over the prior quarter due to an increase in non-Agency debt. 30-year fixed rate securities are 50% of the entire Agency MBS portfolio, followed by 15-year fixed rate at 35%. The company reported a CPR of 6.2% at the end of the third quarter. The stock offers a dividend yield of 12.5% and is trading at 24% premium to its book value.

American Capital Mortgage is managed by the same team that manages American Capital Agency. While American Capital Agency is an exclusive Agency mREIT, American Capital Mortgage is classified as a hybrid REIT. The company started its operations in 2011 and has large chunks of Agency MBS in its portfolio. Around 92% of the portfolio is invested in Agency MBS, while the remaining 8% is non-Agency. Agency MBS, 30-year fixed rate are 59%, followed by 15-year fixed rate securities at 31% of the entire MBS portfolio at the end of the third quarter of 2012. The stock is currently offering 13.9% dividend yield and is trading at 24% premium to its book value.

Conclusion

I am bullish on Two Harbors Investment. The company has a diversified MBS mix, which under the challenging macroeconomic environment is supporting the company’s net interest spread and dividend distributions.

The article An 18% Yield Makes This Hybrid mREIT the Best Buy originally appeared on Fool.com and is written by Adnan Khan.

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