Annaly Capital Management, Inc. (NLY), American Capital Agency Corp. (AGNC) & More: Are Mortgage REITs Finished? Not So Fast…

Capstead Mortgage Corporation (NYSE:CMO)
This adjustable-rate mortgage REIT is trading higher by nearly 10% this year. It pays an annual dividend of $1.68, which equals a 10.8% yield.

MFA Financial, Inc. (NYSE:MFA)
This is a hybrid mortgage REIT consisting of both adjustable and regular mortgages. It is trading higher by nearly 10% on the year but is off by 3% over the past few weeks. Yielding nearly 17% with an annual dividend of $1.58, this hybrid REIT is a top performer.

Risks to Consider: During the past week, all mortgage REITs have bounced higher on stabilizing interest ratespeculation. Although adjustable-rate and hybrid mortgage REITs have a much higher tolerance for rising rates than fixed-rate mortgage REITs, most mortgage REITs are negatively affected by rising rates. With the rates so low, it is only a matter of time until they start rising again. Use caution in this sector because the high yieldsmean equally high risk.

Action to Take –> The mortgage REIT sector is extremely attractive due to the higher than normal yields thrown off by these stocks. If you believe higher interest rates are inevitable, avoiding the standard fixed-rate agency mortgage REITs makes sense for everyone but short-term traders. However, longer-term investors cangain protection from rising interest rates but still retain exposure to the high-yielding sector by investing in hybrid or adjustable-rate mortgage REITs. I still see opportunity for longer-term investors in adjustable-rate and hybrid REITs despite the inevitability of interest rate increases.

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This article was originally written by David Goodboy and posted on StreetAuthority.