When investing in mortgage real estate investment trusts, investors should be aware that they typically have higher yields than stock REITs and should never trade at a premium to their book value greater than the dividend yield. Mortgage REITs typically generate income from the interest on their mortgages and may be subject to greater credit risk based on the investment.
Mortgage REITs have produced annualized returns of 10.3% over the past three years and tend to outperform equity REITs during periods of rising interest rates. That’s because during periods of rising interest rates, the cost of capital rises, which can influence stock REITs to dilute shareholders by issuing more equity through common stock.
In addition, mortgage REITs have the ability to issue new debt through senior secured debt obligations without having to issue new equity.
Here are two high-yield mortgage REITs that are trading below book value.
AG Mortgage Investment Trust Inc. MITTEN offers a dividend yield of 21.59%, or 84 cents per share annually on quarterly payments, with a mixed track record of growing its dividends. AG Mortgage Investment is a mortgage REIT focused on investing in, acquiring and managing a diversified portfolio of residential mortgage investments, other real estate-related securities and financial assets, which the company designates as its target investments.
As of June 30, 2022, AG Mortgage had a book value of $11.48 compared to a book value of $13.37 as of March 31, 2022.
“The negative impact on our book value during the quarter was caused by unrealized mark-to-market losses on our stored loan portfolio as a result of historically wide spreads. However, this challenging market environment also presents us with an enhanced investment opportunity that we are well positioned to take advantage of,” said David RobertsManaging Director.
Two…
