| Mortgage
REITs with Yields of up to 16% |
Published: June 2, 2006
You've no doubt read the
headlines. Investment gurus of all stripes have been sounding the alert
that the double-digit returns you've grown to expect from real estate
investment trusts (REITs) may be a thing of the past. The sector --
which invests in real estate assets and distributes at least 90% of its
taxable income to shareholders -- is seen by many as fully valued and
ready for a pullback.
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Most of these analysts,
however, are overlooking one corner of the REIT universe that has been
left largely untouched in the recent run on REITs. Mortgage REITs --
real estate investment trusts that invest in mortgage securities -- have
moved sharply lower during the past year. One-time Wall Street darling
Impac Mortgage (IMH), for instance, has plunged roughly -70% from its
2005 high. Meanwhile, investors have slashed the share price of industry
leader Annaly Mortgage (NLY) almost in half over the same time span.
Like many of their brethren, these two trusts were forced to cut their
dividends because of shrinking profits. Even though not all mortgage
REITs suffered the same fate, the entire group has gotten clobbered,
providing us with an excellent entry opportunity in certain select
stocks.
I first identified some opportunities in this sector late last year, and
now that the investment climate is turning increasingly positive for
these firms, I've decided to revisit the group. In the process, I'll
introduce you to a few of my current favorites in this industry.
Incidentally, I still like the three investing ideas I identified last
year -- American Home Mortgage (AHM), Gramercy Capital (GKK), and
Capstead Mortgage Preferred B (CMO-PB). These three stocks have
delivered average returns of over +14% in the past six months, which
equates to more than +28% annual returns.
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Editor's
Note: Carla Pasternak's model portfolios focus
exclusively on investment opportunities with ultra-high yields.
In fact, in each of her monthly High-Yield Investing
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Best of the Pack
Although some stocks in the mortgage REIT group are still facing selling
pressure, after careful digging I've uncovered a few that are springing
back to life. Today's winning investment ideas, which I'll profile in
great depth in a moment, have shot up nearly +20% in the past three
months alone as the profit outlook for mortgage REITs has turned
bullish.
Despite their recent rally, though, these stocks still have room to move
higher. They're trading at just 8 times next year's projected earnings
-- almost half of the valuation level enjoyed by the average stock in
the benchmark S&P 500 Index, which sports a P/E of 15 times next
year's earnings.
Best of all, you can now lock in juicy yields of up to 16.2% on these
stocks -- far more attractive than the 3.6% average dividend yield
offered by the 100 highest yielding stocks in the S&P 500.
The winning picks I'll profile below are also strong dividend payers.
While other mortgage trusts were cutting their dividends, these firms
either boosted their payments or kept their dividends steady. One of the
companies I'll introduce you to in a moment has maintained its high
dividend payout over the course of the last year. Meanwhile, the other
firm has actually boosted its dividend by +13% during the same stretch.
As the investment climate for mortgage trusts continues to improve,
stocks like these -- both of which have outperformed during tough times
-- should continue to lead the pack . . .
Important Note: Throughout the
remainder of this article, editor Carla Pasternak provides a closer look
at the mortgage REIT business, as well as an in-depth analysis of her
two favorite mortgage REITs, one of which sports a dividend yield of
16.2%. However, in order to view the remainder of this article, you'll
need to subscribe to our premium income-oriented newsletter -- High-Yield
Investing. After you subscribe you'll receive immediate
access to this full article, as well as our monthly High-Yield
Investing newsletter and a host of additional premium content.
Please visit one of the following links to continue . . .
Good investing!
Carla Pasternak
Editor
High-Yield Investing
http://www.StreetAuthority.com
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Carla
Pasternak draws on a variety of financial backgrounds to make profitable
calls on income-generating stocks for her readers.
Carla has
been employed in the investment industry for more than two decades. In
addition to her work as a writer for several other nationally recognized
financial publishers, her previous experience includes a position as
President of a well-respected investor relations firm. She has also been
writing shareholder reports for public companies (annual reports,
speeches, corporate profiles, slide shows, etc.) since 1980.
A highly
successful investment analyst, Carla specializes in high-yield,
income-paying stocks. In that pursuit, she's always mindful to select
companies that not only pay rich dividends, but that also have the
potential to deliver strong long-term capital gains.
On the
educational front, Carla holds both MBA and Ph.D. degrees. When she's
not watching the market, she's teaching business courses at the college
level and managing several million dollars in portfolio assets.
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