Chimera Investment Corporation (NYSE:CIM)’s investors have fared better than those of Annaly Capital Management, Inc. (NYSE:NLY) and American Capital Agency Corp. (NASDAQ:AGNC). Chimera Investment Corporation (NYSE:CIM)’s stock price has gained 23.5% during the last year, leading to total returns of nearly 40% on an investor’s original investment, as shown below.
| Dollar value | Percentage change | |
|---|---|---|
| Total return | $0.95 | 37.85% |
Two Harbors Investment Corp (NYSE:TWO)
| Date | 3Q 2012 | 4Q 2012 | 1Q 2013 | 2Q 2013 | Current | Yearly Gain/Loss | Percentage change |
|---|---|---|---|---|---|---|---|
| Share price | $10.26 | $11.91 | $11.67 | $13.95 | $10.98 | $0.72 | 7.02% |
| Dividend | $0.40 | $0.36 | $0.55 | $0.32 | – | $1.63 | 15.89% |
Finally, we come to Two Harbors Investment Corp (NYSE:TWO)
, which has seen its share price gain around 7% during the four quarter period. In the same period investors also received $1.63 in dividends, or 15.9% return on their original investment.
| Dollar value | Percentage change | |
|---|---|---|
| Total return | $2.35 | 22.90% |
Overall, Two’s investors have made a total return of 22.9% on their investment.
Comparison to the market
How do these returns compare to the market? Well, taking into account an average yield of 2% on the S&P 500 over the last four quarters the index has returned around 28%.
| S&P 500 | Annaly | American Capital | Chimera | Two | |
|---|---|---|---|---|---|
| Total return | 28% | -9.7% | -12.8% | 37.9% | 22.9% |
So, during the past year investors who have been lured into high-yielding mREITs have lost out when total returns are compared to the market.
So what now?
The dividend payouts on offer from these mREITs have softened the blow from falling stock prices, but they have not improved investor returns.
However, over a longer time period the opposite may be true; for example Annaly Capital Management, Inc. (NYSE:NLY), since its inception back in 1997, has returned around 600% for investors, beating the S&P 500 by 500%! Two Harbors Investment Corp (NYSE:TWO) has returned about 230% since inception in 2008, only slightly more than the residential REIT index, which returned 190%. American Capital Agency Corp. (NASDAQ:AGNC) returned up to 300% over the same period, but due to the market’s recent pullback, this has fallen to around 200%. Meanwhile, Chimera Investment Corporation (NYSE:CIM)’s total return since 2008 is negative 60%.
However, these results do not include pre-2008, which was the mortgage-backed-securities’ heyday, so I am hesitant to say that these returns are a true representation of the facts.
In addition, Federal Reserve policy remains uncertain, and any reduction of the $85 billion a month in bond purchases will really change the outlook for the sector.
Conclusion
Over the past four quarters, the high dividend payouts from these mREITs have on average, not been enough to offset declines in the stock price. In addition, there is not a significant amount of evidence to support the argument that over a multi-year period total returns will outperform the market.
Based on that and the current uncertainty over future Fed policy I would avoid mREITs.
Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Rupert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article mREIT Share Prices are Falling but Do Their Dividends Fill the Gap? originally appeared on Fool.com is written by Rupert Hargreaves.
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