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

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

The 50 Best Personal Finance Blogs

Most Expensive Apartments in New York City

Bloodiest UFC Fights Ever Fought

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!