NEW YORK, NY--(Marketwire - Nov 12, 2012) - 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 CYS Investments Inc. (
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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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CYS Investments is a specialty finance company that invests on a leveraged basis in residential mortgage pass-through securities for which the principal and interest payments are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. The company currently pays an annual dividend of $1.95 per share for a yield of around 15.4 percent.
Invesco Mortgage Capital Inc. is a real estate investment trust primarily focused on investing in, financing and managing residential and commercial mortgage-backed securities and mortgage loans, which it collectively refers to as its target assets. The company currently pays an annual dividend of $2.60 per share for a yield of around 12.8 percent.
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