Western Asset Mortgage Capital Corp (WMC), Javelin Mortgage Investment Corp (JMI), American Capital Agency Corp. (AGNC): Chasing These 20% Dividend Yielding Stocks

Western Asset Mortgage Capital Corp (NYSE:WMC) is classified as a hybrid mREIT as it invests in both Agency and non-Agency MBS. Besides these investments, Western Asset Mortgage Capital Corp (NYSE:WMC) also has inverse interest-only floaters in its portfolio, which add to the benefit of the company. This diversity in the company’s asset portfolio makes it my most favorable mREIT among the three considered in this article. Overall, nearly 89% of the company’s first quarter end portfolio was invested in Agency-only securities, while the rest is non-Agency and interest-only strips.

Javelin Mortgage Investment Corp (NYSE:JMI) is another hybrid mREIT; however, it’s one of the least preferred hybrid mREITs. The company was recently downgraded by analysts at Citigroup on concerns about a significant decline in its book value. One of the major concern about Javelin Mortgage Investment Corp (NYSE:JMI) is the use of higher leverage used by the company in such volatile times (8 times, compared to 5.8 times for American Capital Agency Corp. (NASDAQ:AGNC)). Leverage tends to magnify results and will cause increased volatility in the book value of JAVELIN Mortgage. Besides, Javelin Mortgage Investment Corp (NYSE:JMI) invests a modest portion of its entire equity in the non-Agency MBS, so its financial results for the second quarter would be overshadowed by the weak performance of its Agency portfolio.

Conclusion

Given the prolonged uncertainty that surrounds the unwinding of QE3 and the resultant volatility in interest rates, mortgage REITs with the largest exposures in the high yielding non-Agency residential MBS and commercial MBS are best suited, as these securities will provide a cushion to the book value while enhancing earnings potential. Among the three mREITs considered in this article, Western Asset Mortgage Capital Corp (NYSE:WMC) is the closest to the criteria, which is why I believe it’s the best bet.

The article Chasing These 20% Dividend Yielding 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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