Mortgage-backed real estate investment trusts [mREITs] usually yield higher compared to other income stocks. This is due to the fact that these companies get a tax shield if their distribution of profits is at least 90%. However, income from dividends is not tax-free. Thus, investors don’t get to fully enjoy the tax-free benefit. The dividend earnings will be treated as income. Nevertheless, they are still better than having no dividend at all.
So if you want to maximize the earnings from your investment, then REIT stocks are among the best options. Your earning opportunities are not only from share price fluctuations, but you will also earn income from yearly dividends. Here are five of mREITs with good share performance while giving higher yields.
Annaly Capital Management, Inc. (NYSE:NLY)
Annaly Capital Management, Inc. (NYSE:NLY) is a good mREIT for investment with relatively stable market capitalization of $13.6 billion. It is profitable, posting net income of $1.73 billion from $3.26 billion revenue. The profit margin is high at 80%.
Annaly Capital Management, Inc. (NYSE:NLY) pays an annualized dividend of $1.80 per share, while its current yield is 12.58%. This year’s quarterly dividend was declared at $0.45 per share for the first quarter. The quarterly dividends had been decreasing since the second quarter of 2011.
Last year, there were 3 dividend cuts. The 1st and 2nd quarters have the same dividend amount at $0.55 per share. This was reduced to $0.50 in the 3rd quarter, and finally reduced to $0.45 in the last quarter.
Despite the decreasing dividend, Annaly Capital Management, Inc. (NYSE:NLY) has still paid out yearly dividends to all shareholders for the past decade. Annaly Capital Management, Inc. (NYSE:NLY) shares peaked at $16.09 on March 26, gaining 12% YTD before retreating towards their current trading price.
Another attractive mREIT stock is Two Harbors Investment , which performed better than Annaly Capital Management, Inc. (NYSE:NLY). Shares of Two Harbors Investment Corp (NYSE:TWO) gained 9.6% year-to-date from $10.48 to $11.49 per share.
Two Harbors Investment Corp (NYSE:TWO) is a medium cap company with market capitalization of $4.1 billion. Last year it reported net income of $291 million from total revenue of $455 million. Its profit margin is 80% while its operating margin is 88.75%. Two Harbors Investment Corp (NYSE:TWO) has outstanding quarterly growth year-over-year in both revenue and earnings. Its revenue quarterly growth is 233%, while the quarterly earnings growth is 177%.
Last year, the company paid out total dividend of $1.71 per share. Dividend paid in the 1st and 2nd quarters remained unchanged at $0.40 per share. This was reduced to $0.36 in the 3rd quarter, but increased to $0.55 in the 4th quarter. This year, the first quarter dividend was 0.32 with reduced annualized dividend of $1.28 per share. The firm’s current yield is 11.03%.
Another good REIT company for dividend stock investment is Capstead Mortgage Corporation (NYSE:CMO). It has an annualized dividend of $1.23 and currently yields 10.07%.
Capstead Mortgage Corporation (NYSE:CMO) is a small cap company with market capitalization of $1.17 billion. Last year, the firm posted net income of $163 million with a total revenue of $256 million. While the financials are weaker than Annaly Capital Management, Inc. (NYSE:NLY), it performed better on the trading floor. Its shares growth is 3.4% year-to-date from $11.86 to $12.26 per share as of May 24. Capstead Mortgage Corporation (NYSE:CMO) lost traction for the month of May after generally upbeat for the most part of the year. Month-to-date growth is quite disappointing at -5.7%. But this is part of the cyclical nature of Capstead Mortgage Corporation (NYSE:CMO)’s shares. In any case, the company is still triumphant with positive growth year to date.
Shares of Hatteras Financial Corp. (NYSE:HTS) also have turned in a good performance. Its price gained 5% this year from $24.42 to $25.71 per share. But just like the other REIT stocks with roller coaster share performances, shares hit the peak at $27.59 on April 8, before retreating towards its current price level. Just like Capstead Mortgage Corporation (NYSE:CMO), the month of May saw the biggest decline, losing about 5%.
Hatteras Financial Corp. (NYSE:HTS) is a medium cap firm with market capitalization of $2.5 billion. Its earnings multiple is 7.58, while its return on equity is 12%. Last year, the company reported total revenue of $506 million with a net income of $349 million. The annualized dividend of Hatteras Financial Corp. (NYSE:HTS) is $2.8 per share with current yield of 10.87%. This year, the company paid the first quarter dividend of $0.70 per share on April 19.
Another medium cap REIT with a lucrative yield is Chimera Investment Corporation (NYSE:CIM). Its current yield is 11.25% with annualized dividend of $0.36 per share. Chimera Investment Corporation (NYSE:CIM) has market capitalization of $3.25 billion. During the last twelve months, it posted net income of $137 million.
Chimera Investment Corporation (NYSE:CIM) shares made the biggest gain compared to the four other REIT stocks with ytd growth of 21.5%. It started the year with a closing price of $2.60 per share. It ballooned to $3.16 per share on May 24. This makes it quite attractive in terms of shares growth and dividend yield.
Summary
mREITs are risky due to the high volatility of their market. Unlike other companies with stable dividend history, mREITs’ dividends are generally wobbly. This is because dividends are greatly influenced by fluctuations of interest rates and mortgage defaults.
However, if you invest on the best performing mREIT stocks, you will enjoy higher earnings not just from capital appreciations but also from dividends. Also, the Federal Reserve’s low-interest policy helped to boost mREIT balance sheets. As long as the low-interest rate policy is conducted, I expect the mortgage-backed REITs to perform fine while offering double-digit yields.
The article 5 mREITs With Attractive Yields originally appeared on Fool.com is written by Nur Tarkak.
Nur Tarkak has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Nur 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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