Qualified or unqualified DIV from mREITS like MTGE?
Is it one or the other or some combination of the two (qual or non-qual)? My transaction notices from Schwab shows these dividends as "qualified." Obviously, this makes a difference from a tax standpoint. With all the talk of raising the tax rate on qualified dividends from 15% to a much higher rate, this may have spooked mREIT investors (hence today's broad decline in mREIT stocks).
Schwab is wrong ! these mReit dividends are unqualified . some small percentage of the dividends are put down as capital gains . mReits should not be so affected by the fiscal cliff as their dividends are unqualified and taxed at the higher rates anyway !
Thanks for the info. That was my assumption as as well (non-qualified). Most of these mREITS are in my 401k, so it's of no consequence. I was just surprised to see how Schwab was recording these on my trade transaction listing.
I suppose the larger point is why the recent decline in prices for most mREITs. From my perspective, investors may feel pressured---rightly or wrongly--- to sell now for several reasons:
1) Net interest margin compression. A flatter yield curve and a more rapid drop in mortgage rates these past 18 months relative to an mREIT's borrowing costs. I think there is some evidence that this is happening.
2) Rumors of mortgage principal forgiveness. Even if this came to pass, I assume that the de facto guarantee on GMBS would limit the losses. Nevertheless, uncertainty can drive out the more risk-averse investors.
3) The effect of rising tax rates. Some of those investors heading for the exits may have misunderstood how dividends from mREITs are taxed (generally, ordinary rates). But I think most investors understand the nature of these dividends (non-qualified). Thus, a dramatic spike in tax rates on dividends, say from 15 to 25 percent, would have no effect on taxes paid on mREIT dividends (of course any increase in ordinary tax rates would have an effect).
4) The FRB's outsized purchases of MBS's. I suppose supply and demand behavior on prices still plays a role here, and MBS prices could rise as the FRB crowds out other investors (mREITs) for the supply of available MBS (especially from GSE's). The effect of the FRB on the MBS market generally may drive mREITs to seek better returns in riskier commercial MBS, and/or pay higher premiums on GMBS paper, and engage in costlier hedging strategies as a result. Maybe investors are following their instincts and selling mREITs when they hear: "We're from the government and we're here to help (QE-3)."
I would interested to know what others think on why the steep decline in mREIT prices recently.