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10 Attractively Priced Mortgage Real Estate Investment Trusts (mREITs) You Should Consider

CEO Khai Intela
Mortgage Real Estate Investment Trusts (mREITs) - often referred to as "mREITs" - can be a lucrative source of income for investors. These trusts invest in mortgages that are typically backed by hard assets such...

Mortgage Real Estate Investment Trusts (mREITs) - often referred to as "mREITs" - can be a lucrative source of income for investors. These trusts invest in mortgages that are typically backed by hard assets such as commercial and residential real estate, with conservative loan-to-value ratios. By financing their portfolios with a combination of equity and debt at lower interest rates than they earn on their mortgage investments, mREITs generate significant and stable cash flow.

Furthermore, as REITs, they enjoy tax advantages and are required to distribute at least 90% of their taxable income to shareholders in the form of dividends. This results in mREITs offering high dividend yields, making them an exceptional source of passive income.

However, it's important to remember that mREITs, due to their leverage, come with risks that can sometimes lead to dividend cuts. Therefore, investors must exercise prudence when selecting which mREITs to invest in. In this article, we will explore 10 attractively priced mREITs in the market today.

1. ARMOUR Residential REIT (ARR)

ARMOUR Residential REIT, established in 2008, focuses on investing in residential mortgage-backed securities guaranteed or issued by US government entities such as Fannie Mae, Freddie Mac, and Ginnie Mae. While ARMOUR has experienced cash flow volatility and dividend cuts in the past, it is currently in a recovery phase and is expected to continue improving in the coming quarters and years. Although its growth may be relatively flat, it currently offers an attractive dividend yield of 20.1% and trades at a significant discount to its book value.

ARMOUR Residential REIT Image Source: Investor Presentation

2. Two Harbors Investment Corp. (TWO)

Two Harbors Investment Corp. is a residential mREIT focused on residential mortgage-backed securities (RMBS), mortgage loans, mortgage servicing rights, and commercial real estate. Despite a decline in book value per share, Two Harbors has delivered strong total returns to investors through its hefty dividend payouts. Recent actions, such as a reverse stock split and strategic investments, have positioned the company well for the future. While its growth outlook is weak, the current 19.5% dividend yield and deep discount to book value make it an appealing investment for those with a higher risk tolerance.

Two Harbors Investment Corp. Image Source: Investor Presentation

3. Orchid Island Capital, Inc. (ORC)

Orchid Island Capital, Inc. is an mREIT that focuses on investing in residential mortgage-backed securities (RMBS), including pass-through and structured agency RMBSs. Orchid Island's earnings have been volatile in recent years, with net losses and minimal profits. However, the company's book value per share is expected to recover, offering an attractive investment opportunity for those with a relatively high-risk tolerance. With a dividend yield of 19.1% and a substantial discount to book value, Orchid Island Capital is worth considering.

Orchid Island Capital, Inc. Image Source: Investor Presentation

4. AGNC Investment Corporation (AGNC)

AGNC Investment Corporation, founded in 2008, primarily invests in agency mortgage-backed securities (MBS). With a portfolio consisting of residential mortgage pass-through securities and collateralized mortgage obligations (CMO), AGNC generates revenue primarily from interest income. While its financial results have been volatile due to its leveraged business model and sensitivity to interest rates, the current lower interest rate environment is expected to help AGNC navigate challenges. With a dividend yield of 15.8% and a significant discount to book value, AGNC offers an attractive risk-reward profile.

AGNC Investment Corporation Image Source: Investor Presentation

5. KKR Real Estate Finance Trust Inc. (KREF)

KKR Real Estate Finance Trust specializes in originating and acquiring senior loans to commercial real estate properties owned and operated by experienced sponsors. The trust has built a multi-billion portfolio of senior loans primarily secured by multifamily and office properties. With access to low-cost financing and a favorable low-rate environment, KREF has experienced rapid growth. While future profitability is sensitive to interest rate changes, the current 15.5% dividend yield makes KREF an attractive investment opportunity.

KKR Real Estate Finance Trust Inc. Image Source: Investor Presentation

6. Ares Commercial Real Estate Corporation (ACRE)

Ares Commercial Real Estate Corporation is an mREIT externally managed by a subsidiary of Ares Management Corporation, a globally recognized alternative asset manager. ACRE has grown its asset base over the years, resulting in relatively strong earnings per share (EPS) performance. Fluctuations in EPS are influenced by factors such as investment yields and interest rates. While dividend growth is minimal, the current 14.4% dividend yield offers attractive returns for income-focused investors.

Ares Commercial Real Estate Corporation Image Source: Investor Presentation

7. Annaly Capital Management (NLY)

Annaly Capital Management invests in residential and commercial mortgages, including agency mortgage-backed securities and various real estate assets. While the company is expected to experience gradual growth and maintain its significant dividend, any significant market downturn could impact its financial performance. With a dividend yield of 14.1% and a reputation as one of the higher-quality mREITs, Annaly offers an attractive investment opportunity.

Annaly Capital Management Image Source: Investor Presentation

8. Apollo Commercial Real Estate Finance (ARI)

Apollo Commercial Real Estate Finance specializes in investing in debt securities, including senior mortgages, mezzanine loans, and other commercial real estate-related debt types. With a diversified loan portfolio, Apollo has delivered relatively strong earnings per share (EPS) performance. However, its growth prospects face headwinds from rising interest rates and a decline in demand for new mortgage loans. Nevertheless, the current 13.8% dividend yield makes Apollo an attractive investment for those who trust management to sustain the dividend in the face of macroeconomic challenges.

Apollo Commercial Real Estate Finance Image Source: Investor Presentation

9. Blackstone Mortgage Trust Inc. (BXMT)

Blackstone Mortgage Trust specializes in originating and acquiring senior loans secured by commercial properties in North America and Europe. Its asset portfolio consists primarily of floating-rate loans secured by first-priority mortgages. While earnings growth is influenced by changes in interest rates, Blackstone Mortgage Trust has a track record of accessing affordable capital for growth. Despite challenges in growing its dividend in recent years, the current 13.5% dividend yield and strong external management make Blackstone Mortgage Trust an attractive investment.

Blackstone Mortgage Trust Inc. Image Source: Investor Presentation

10. Starwood Property Trust (STWD)

Starwood Property Trust originates, acquires, finances, and manages commercial mortgage loans and other debt and equity investments. With a well-diversified portfolio and a track record of solid performance, Starwood demonstrated resilience during the COVID-19 pandemic. While earnings per share (EPS) and dividends per share (DPS) are expected to remain stagnant, the current 10.9% dividend yield and high-quality asset portfolio make Starwood Property Trust an attractive investment.

Starwood Property Trust Image Source: Investor Presentation

In conclusion, mREITs have the potential to be powerful income generators. However, investors should exercise caution and focus on quality and diversification when investing in this sector. By considering the 10 attractively priced mREITs discussed in this article, you can potentially benefit from their high dividend yields and secure a reliable source of passive income.

Note: Investors seeking real estate exposure can explore various sources, including platforms like Ark7. To discover more high-quality dividend stocks, you can refer to the Sure Dividend databases, which provide information on stocks with long streaks of rising dividends. Additionally, analyzing the portfolios of successful investors like Warren Buffett and Bill Gates can offer valuable insights. For those looking for a highly customized dividend income stream, lists of high dividend stocks and stocks that pay monthly dividends can be useful resources.

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