An 11% Yield With Potential Growth: Hatteras Financial Corp. (HTS), Annaly Capital Management, Inc. (NLY), and American Capital Agency Corp. (AGNC)

Since mREITs are required to pay 90% of their earnings in distributions, the companies with higher growth rates, in theory would pay better dividends. With the second highest growth rate of the bunch, that’s one positive factor working in Invesco’s favor.

A second way to differentiate between these companies is by looking at their book value compared to the current stock price. While Hatteras Financial Corp. (NYSE:HTS) and Annaly Capital Management, Inc. (NYSE:NLY) both sell at discounts to their book value, their forward yields are also expected to be lower than the other two (more on yields in a minute). At current prices, American Capital Agency Corp. (NASDAQ:AGNC) actually sells at about a 2.6% premium to book value, whereas Invesco sells for about its book value. This is another point in Invesco’s column.

What will they pay?
The key reason most investors are interested in these companies is their yield. However, many analysts make the huge mistake of quoting trailing yield. Since mREITs pay 90% of their earnings, what they paid in the past is useless information. Like trying to drive down the highway looking backward, investors relying on trailing yields are in for a negative surprise.

Instead, figuring out what each company might pay in the future makes much more sense. If we multiply each company’s projected EPS times 90%, we should get the potential forward yield of each company.

This is where the rubber meets the road so to say. Based on estimates, Annaly Capital Management, Inc. (NYSE:NLY)’s forward yield would be about 8.1%, followed by Hatteras at 9.1%. American Capital Agency Corp. (NASDAQ:AGNC) should yield 11.52%, and Invesco should yield 11.22%.

While it looks like American Capital might be the slightly better value, we have to look at the overall picture. Invesco has a stronger expected growth rate, and sells for about equal to book value, whereas American Capital Agency Corp. (NASDAQ:AGNC) sells at a 2.6% premium to book. With their yields separated by just 0.3%, I would suggest the 1% better earnings growth expected at Invesco is the tie-breaker.

With shares of Invesco selling for a forward P/E of just 8, they seem like an outstanding value even if the company saw no earnings growth. For investors looking for a good dividend, Invesco is arguably one of the best high-yielders in the market today.

The article An 11% Yield With Potential Growth originally appeared on Fool.com and is written by Chad Henage.

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