Your Best Hybrid REIT: American Capital Mortgage Investment Crp (MTGE)

Competition

AG Mortgage Investment Trust Inc (NYSE:MITT) is a relatively new mortgage REIT. At the end of the third quarter around 80% of the company’s portfolio was invested in Agency securities, followed by non-Agency at 15%. Besides, the company has invested in commercial MBS (3% of portfolio) and asset backed securities. The company reported a surge in its net interest margin during the third quarter over the prior quarter due to an increase in non-Agency debt. 30-year fixed rate securities are 50% of the entire Agency MBS portfolio, followed by 15-year fixed rate at 35%. The company reported a CPR of 6.2% at the end of the third quarter. The stock offers a dividend yield of 12.5% and is trading at a 24% premium to its book value.

MFA Financial, Inc. (NYSE:MFA) has been in business since 1998 and seeks to invest in both Agency and non-Agency MBS. Around 60% of the company’s asset portfolio is invested in Agency MBS, while the rest is non-Agency. Most of the non-Agency MBS are purchased at discounts to their par values and are considered very high quality. Within the Agency MBS, the company has a large concentration in 15-year fixed rate securities, which increases the prepayment protection, however a majority of it is not eligible for HARP. The company reported CPR of 21.6% for the third quarter, up from 20.4% at the end of the second quarter. MFA is currently yielding 8.9% and is trading at a 28% premium to its book value.

Invesco Mortgage Capital Inc (NYSE:IVR) was formed to operate as a debt REIT that invests in residential and commercial mortgage backed securities besides investing in mortgage loans. The residential mortgage backed securities that Invesco is primarily interested in are MBS for which any of the government sponsored Agencies guarantee the interest and principal payment. The company also has non-Agency MBS in its portfolio, which provide the advantage of diversification to Invesco under the prevailing challenging macroeconomic environment. At the end of the fourth quarter, Agency MBS are 69%, while non-Agency MBS constitute 17%. Within the Agency MBS holdings, the company has a large concentration in 30-year fixed rate, followed by 15-year fixed rate securities. The stock is yielding 12.3% and trading in line with its book value.

Conclusion

I am bullish on American Capital Mortgage. It is currently offering 13.8% dividend yield and is trading at 3% premium to its book value. I believe the stock is attractively valued and its highly prepayment protected and diversified MBS portfolio presents an excellent investment opportunity.

The article Your Best Hybrid REIT originally appeared on Fool.com and is written by Adnan Khan.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!