Some of the best yields investors can find today are from mortgage REITs.
How mortgage REITs basically make their money is that they buy mortgages and then leverage these investments by borrowing repurchase agreements against them. The difference between the short-term rate they are paying and the interest they collect from the mortgages is the interest rate spread. The larger the spread, the more money they tend to make. In addition, the more leverage they use the more money they can earn.
For example, if a mortgage REIT had $1 million to invest, it could purchase a portfolio of agency securities (with basically no credit risk) and use them as collateral to borrow $8 million in additional securities. If the yield of the securities was 6% and the cost to borrow the funds was 5%, the interest rate spread would be 1%. If the firm didn't use leverage, its return would just be 6%, or $60,000. With the leverage, its return would be $140,000, or 14%, on its $1 million investment.
The past few years had been an ideal environment for the firms that invest primarily in agency-backed securities, but 2013 turned into a disaster for these stocks when mortgage rates started to rise.
In a new 35-page special report entitled Searching for High Yield Winners in 2014, BullMarket.com gives its top-9 high-yield stocks for the new year. Find out if any high-yield mortgage REITS such as Annaly Capital Management (NLY), American Capital Agency (AGNC), Anworth Mortgage (ANH), Capstead Mortgage (CMO), Invesco Mortgage (IVR), or Hatteras Financial (HTS) made the list.
Since its first high yield report published in November 2008, BullMarket.com's annual high yield selections have generated a 5-year cumulative return of 166.2%, greatly outpacing the 73.9% return of the S&P over the same period
For access to the 35-page report, examining each pick's dividend history, business activities, strengths, weaknesses, latest earnings report, and much more, visit BullMarket.com. Mortgage REIT investors would also be interested in BullMarket.com's extensive coverage of these stock in its archives.
A daily investment service that is committed to creating long-term wealth for its members, BullMarket.com's Recommended List of stocks is up 161.6% from 2009 to November 2013 versus a 99.9% return for the S&P, a 61.7% outperformance, topping the benchmark each year since the start of the Great Recession. Subscribers receive actionable market commentary, access to 40+ stock ideas on the Recommended List, and real-time trade alerts. Plus, sign up for a free trial today to view Bull Market's in-depth Special Reports - including its annual High Yield and MLP reports - and its timely Earnings Previews, which are published every Friday during the heart of earnings season. Get a Risk-Free Trial to Bull Market Today! (Please note returns are unaudited.)