Much to my dismay, I found out from my 1099-B that 20% of MY MReit's so-called handsome distribution was actually Return Of Capital ( ROC ) - and NOT true dividend. Has anybody looked at their 1099 yet and let us know if AGNC also distributed ROC last year. I hate ROC - better distribute less than to fool me with ROC.
Much to my dismay, I found out from my 1099-B that 20% of MY MReit's so-called handsome distribution was actually Return Of Capital ( ROC ) - and NOT true dividend. Has anybody looked at their 1099 yet and let us know if NLY also distributed ROC last year.
1) Assuming a marginal tax rate of 25% and long-term capital gains tax rate of 15%, with the S&P 500 after-tax dividend yield being 1.4%, current 10% dividend yield in MReits ( AFTER-TAX yield = 7.5% ) is equal to an annual return of 7.5% on S&P 500. One is high-risk investment, the other lowER-risk investment.
2) S&P 500 is probably BACK-STOPPED by the Fed, PPT and banks. No such protection for the MReits.
3) S&P 500 held by LARGE institutions and investors - who can WITHSTAND VOLATILITY much better than the SMALL individual investors who hold MReits ( large individual investors don't hold MReits because of the CRUSHING marginal TAX RATE ).
4) Will investors flock to MReits if S&P goes down ? If past experience is anything - the answer is NO. So MReits go down when S&P holds steady - and then MReits GO DOWN again when S&P starts going down. NOT a safe haven at all.
5) MReits are small/medium company stocks. Small cap stocks are underperforming a lot in this market - next underperformer being mid-caps.
With all this said - is it time to RETHINK an APPROPRIATE YIELD for MReits. In other words - is 10% yield STILL ENOUGH ? Risk has increased in the overall stock market again.