Hatteras Financial Corp. (HTS), Capstead Mortgage Corporation (CMO): These 3 Numbers Make This High-Yield Stock A Buy

A Discount And Their Future Yields
Another way to measure mREITs is by their current price relative to their book value. Of the group, Capstead Mortgage sells at the greatest discount to book value at 8.98%, with Hatteras coming in second at 4.47%. Annaly once again loses out to these two at a 3.47% discount, and Invesco is actually selling for a slight premium to book.

While it’s nice to know that Hatteras is selling for below book value, and they are expected to grow, the real reason most investors buy mREITs is for their yield. However, many investors make the mistake of comparing their trailing yields. Since mREITs pay a yield based on 90% of earnings, it makes much more sense to look at their expected earnings for 2013 and then calculate 90% of that figure. After all, it doesn’t matter what the company paid in the last twelve months if they can’t pay the same in the future.

The leader of the pack when it comes to future yield should be Invesco. The company’s 2013 EPS is expected to be about $2.59, and at 90% of this figure would indicate a forward yield of 10.89% based on a 90% payout. Using the same calculations, Hatteras would have the second highest yield at 9.1%, followed by Capstead Mortgage Corporation (NYSE:CMO) at 9.07%, and Annaly at 8.1%.

While all of these yields are impressive in a low interest rate environment, Hatteras Financial Corp. (NYSE:HTS) is the most consistent of the group. The company has the second highest expected growth rate, the second best discount to book value, and the second highest forward yield. They may not be the best at everything, but those are three solid reasons this high-yield stock looks like a buy at current prices.

The article These 3 Numbers Make This High-Yield Stock A Buy originally appeared on Fool.com and is written by Chad Henage.

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