In addition, Gary Kain, American Capital Agency Corp. (NASDAQ:AGNC)’s president and chief investment officer, gave shareholders further confidence:
“The second quarter was characterized by extreme volatility in both interest rates and mortgage spreads. In response, we remained highly disciplined with respect to our risk management activities. We reduced the size of our asset portfolio, adjusted our asset composition to be more consistent with a higher rate environment, and materially increased the duration of our hedges. As a result of these actions and evolving market conditions, our exposure to higher rates is lower than it has been in years, and our ‘pay-up’ risk is now minimal.”
Looking at the nitty-gritty of the company, its investment portfolio totals nearly $92 billion of agency (government-backed) securities, including more than $14 billion of net TBA (to be announced) fair value mortgage positions. The company pays out $4.20 per share in annual dividends. It boasts a price to book ratio of 0.85 and appears well prepared to continue its high-performing dividend yields.
Risks to Consider: Interest rate spread risk is the primary danger to mortgage REITs. In addition, there is a pending risk of Fannie Mae and Freddie Mac being shuttered. This means that there would be a shift in the security of the underlying mortgages. How this will affect agency mortgage REITs is not clear. The Federal Reserve’s eventual exit from quantitative easing may also pose a danger to mortgage REITs. Remember, there is a high risk involved with obtaining these high yields.
Action to Take –> I like American Capital Agency Corp. (NASDAQ:AGNC) right now: Its price is off the highs, and the metrics currently paint a compelling picture. Other high-yielding mortgage REITs includes Annaly Capital Management, Inc. (NYSE:NLY). Those who seek diversification across the high-yielding mortgage REIT space can invest in a mortgage REIT exchange-traded fund like the Market Vectors Mortgage REIT Income Fund (NYSE:MORT). This ETF consists of 14 of the highest yielding mortgage ETFs on the market; the top two holdings, as you might guess, are American Capital Agency and Annaly Capital Management, Inc. (NYSE:NLY).
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– David Goodboy
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