Invesco Mortgage Capital Inc (NYSE:IVR) operates as a well diversified mortgage REIT with a market cap of around $2.5 billion. The company invests in both residential and commercial mortgage backed securities to provide higher risk adjusted returns to its investors through both dividends and capital appreciation. The MBS portfolio that the company is invested in is financed by short-term borrowings (repurchase agreements). The company has a large concentration in Agency residential MBS, while a small proportion of non-Agency residential MBS also exist. The company is also invested in residential and commercial loans. Invesco yields 12.24%, while 10-year Treasuries are yielding only 2%.
Within the mortgage REITs sector, Annaly Capital Management, Inc. (NYSE:NLY) happens to be a competitor of Invesco. Annaly employs the same leverage as Invesco does; however, Annaly is exclusively invested in longer duration Agency residential mortgage backed securities with higher coupons and prepayments speeds. In order to diversify its portfolio under the current challenging macroeconomic environment, Annaly is in aggressive pursuit of another mortgage REIT (CreXus Investments) that invests in commercial MBS. Annaly currently offers a dividend yield of 12%, and is up 6% since the beginning of this year.
In contrast, American Capital Agency Corp. (NASDAQ:AGNC), another mortgage REIT that employs 7.3 times leverage, is considered to have a MBS portfolio with prepayment protected attributes. The company is exclusively invested in Agency residential mortgage; however, it prefers HARP MBS with low loan balances and shorter durations. These characteristics reduce the repayment speeds. The stock offers a dividend yield of 15.9%, and is up 9% since the beginning of the year.
ARMOUR Residential REIT, Inc. (NYSE:ARR) is a similar pure play mortgage REIT that invests in Agency fixed rate securities and ARMs despite the fact that its charter allows for the addition of non-Agency securities. The stock is up 11% since the beginning of the year and yields 13.4%. The company employs 8.9 times leverage and was forced to cut its monthly dividends in 2012.
AG Mortgage Investment Trust Inc (NYSE:MITT) is a hybrid mortgage REIT that invests in Agency MBS, Non-Agency RMBS and Commercial MBS. Its well diversified portfolio contains 87% of Agency RMBS, followed by 10% of non-Agency MBS and 3% of Commercial MBS. I am bullish on the stock due to its attractive relative valuations coupled with a diversified asset mix, enhancing its dividend paying ability. The stock has increased its quarterly dividend twice during the prior year and is currently yielding 12.5%. The stock is up 9% since the beginning of this year.
Recent Quarter’s Earnings
Invesco Mortgage surprised the Street when it reported its fourth quarter earnings on Feb. 5, 2012. The bottom line of $0.77 per share remained $0.12 per share ahead of the consensus mean estimate. This is a positive surprise of 18.5%, which was 16.6% better than the prior year’s bottom line. Compared to the linked quarter, the company's fourth quarter EPS advanced 7%. Higher allocation to credit assets remained the company’s top priority during the fourth quarter, which is why Invesco maintained a stable dividend through 2012.