REIT's Large Dividends Under Pressure as Stimulus Measures Lower Spreads and Bond Yields
November 13 2012 - 7:20AM
Marketwired
Shares of high yielding REITs have been relatively flat this month.
The Vanguard REIT ETF -- which tracks the performance of an index
that measures the performance of publicly traded equity REITs --
has stalled after the Federal Reserve in September announced plans
to purchase $40 billion in mortgage-backed securities a month. Five
Star Equities examines the outlook for diversified REITs and
provides equity research on American Capital Agency Corp. (NASDAQ:
AGNC) and ARMOUR Residential REIT, Inc. (NYSE: ARR).
Access to the full company reports can be found at:
www.FiveStarEquities.com/AGNC
www.FiveStarEquities.com/ARR
Investors have long been attracted to the high yields of
mortgage REITs, which currently averages around 13 percent, nearly
7 times the average dividend yield of the S&P 500. The Fed's
announcement has caused drops in spreads, bond yields and
homeowner's borrowing costs, and as a result company's earnings and
dividends have been under pressure.
"Through the use of leverage, these REITs have yields in the
midteens. At this time, mortgage REITs are benefiting from
historically low short-term rates, but tightening spreads, or a
sudden freeze in the credit markets, would have a significant
negative impact on these firms," Morningstar analyst Patricia Oey
wrote in a report.
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American Capital Agency Corporation pays an annual dividend of
five dollars per share for a yield of around 16.2 percent. The
company invests in residential mortgage pass-through securities and
collateralized mortgage obligations for which the principal and
interest payments are guaranteed by government-sponsored entities
or by the United States government agency.
ARMOUR Residential REIT invests primarily in residential
mortgage backed securities issued or guaranteed by a United States
Government-chartered entity, such as the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation, or
guaranteed by the Government National Mortgage Administration, a
United States Government corporation (Ginnie Mae). The company
currently pays an annual dividend of $1.08 per share for a yield of
around 15.5 percent.
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