Understanding High-Yield Mortgage REITs And How to Choose the Best Ones for 2013

Indie Research

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 have proven to be an ideal environment for the firms that invest primarily in agency-backed securities, but with QE3 and other government programs, mortgage rates have come down and spreads have compressed. This has made investing in mortgage REITs more difficult, but there are still some firms that are attractively priced with well-positioned portfolios.

In a new 80-page special report entitled Climb the Fiscal Cliff: 11 High Yielders for 2013, BullMarket.com gives its top-11 high-yield stocks for the new year, as well gives opinions on several high-yield mortgage REITS including Annaly Capital Management (NLY), American Capital Agency (AGNC), Anworth Mortgage (ANH), Capstead Mortgage (CMO), Chimera (CIM), Invesco Mortgage (IVR). and Hatteras Financial (HTS).

Find out which mortgage REIT stood out among the pack!

Since its first high yield report published in November 2008, BullMarket.com's annual high yield selections have generated a 4-year cumulative return of 166.2%, greatly outpacing the 73.9% return of the S&P over the same period

For access to the 80-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 33.3% from 2008-2011 versus a -14.4% return for the S&P, a 47.7% 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.)

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