In terms of constant prepayment rate (CPR), American Capital ended 2012 with an average of 10%, giving this REIT one of the lowest constant prepayment rates in the overall agency mortgage REIT sector.
The firm has used a unique strategy for keeping its spreads up. Rather than directly trading mortgage securities, the company uses a separate market to cash in on what is referred to as the dollar roll market. Here, American Capital agrees to defer taking delivery of mortgages until a later time in return for the collection of a finance charge.
American Capital has a number of pluses, including a five-year annual revenue growth rate of over 135% (including a recent 1-year revenue growth of over 69%), a P/E ratio of 12.07, and a gross margin of 100%. This REIT pays an annual dividend of $5.00 per share, which equals a dividend yield of over 15.5%.
Another REIT that could be of interest is Chimera Investment Corporation (NYSE:CIM) . Although the firm states earnings per share of only $0.55, it has still managed to pay its shareholders a $0.36 dividend, yielding over 12%. One word of caution here, though, is that Chimera is yet to officially report its earnings since the third quarter of 2011. The reason for this, the company cites, is accounting errors that are related to earnings from bonds that were bought at a discount. Even with this lack of information, though, the company’s shares are up over 12% year-to-date in 2013.
One REIT that may have fallen out of favor of late is ARMOUR Residential REIT, Inc. (NYSE:ARR) . This is due in part to the company’s higher leverage — although this REIT may still be worth a look given the increased stability in the housing market, as well as improving fundamentals.
More than 75% of ARMOUR’s income comes from regular mortgage payments. The company’s free cash flow from operations, minus one-time gains or losses on property sales, has risen over the past three years. Because of ARMOUR’s decline in share price of over 8% since the second quarter of 2012, the shares are currently trading at a medium valued level. This REIT is still holding its own though, providing a dividend yield of 14.4%, and an expected rise in share price over the next 12 months of more than 14% as well.
The bottom line
CYS Investments Inc (NYSE:CYS) Investments’ share price drop, along with the additional special dividend of $0.52 per share, presents a good buying opportunity for investors. American Capital’s stellar numbers, including a P/E ratio of 12.07 and dividend yield of over 15.5%, make it a strong pick among this group of REITs. My least favorite of this group is Chimera Investment, since it has yet to officially report earnings since the third quarter of 2011. Investors should use caution when buying Chimera. ARMOUR Residential, with its 14.4% dividend yield, is certainly worth considering. I expect ARMOUR Residential will perform well over the next six to twelve months.
I believe the best pick out of this group is Annaly Capital. The company has a history of paying large dividends to its shareholders – a feat that is not likely to change any time in the near future. Given its forward momentum in diversifying its portfolio, along with its substantial decrease in expenses, I feel that Annaly Capital is still a good option for REIT investors who are seeking both growth and income in the short and the long run.
The article Will These 5 REITs Maintain Their High Dividends? originally appeared on Fool.com and is written by Jordo Bivona.
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