In this article, we will discuss 10 real estate dividend stocks with high yields.
According to McKinsey, the dollar volume of commercial real estate transactions in the United States was 57% lower in the third quarter of 2020, in comparison to the same period in 2019. With the ease of Covid-19 restrictions, many sectors made a comeback in 2021, giving the real estate market a boost. This allowed the NAREIT’s index of all real estate investment trusts (REITs) to post strong returns in 2021.
Investors spent $144.7 billion on commercial real estate in the United States in the second quarter of 2021, almost three times more than Q2 2020, when the investors were more concerned about the economic impact of the pandemic. 2021’s second-quarter sales volume was also higher than the average of $127.2 billion between 2015 and 2019.
Investors in the stock market have the option to gain exposure in the real estate sector by investing in different types of real estate investment trusts (REIT). REITs are involved in the acquisition, development, and management of commercial, industrial, and residential properties. They are mandated to give back 90% of their funds from operations (FFO) as dividends, which results in REITs having higher dividend yields than normal stocks.
In 2021, two of the leading real estate investment firms in the world, Blackstone Inc. (NYSE:BX) and Brookfield Asset Management Inc. (NYSE:BAM), outpaced the market significantly. Over the year, the stock price of Blackstone more than doubled in value, while Brookfield’s stock rose by 54%. Some of the other popular real estate stocks include Chimera Investment Corporation (NYSE:CIM), New Residential Investment Corp. (NYSE:NRZ), and Two Harbors Investment Corp. (NYSE:TWO).
Photo by Breno Assis on Unsplash
Our Methodology
In this article, we have devised a list of real estate stocks with a yield of over 7% at least. We further analyzed the hedge fund data and the company fundamentals to shortlist the stocks. The hedge fund data is based on the 867 hedge funds tracked by Insider Monkey at the end of Q3 2021.
10 Real Estate Dividend Stocks with High Yields
10. Ellington Financial Inc. (NYSE:EFC)
Dividend Yield: 10.33%
Number of Hedge Funds: 10
Ellington Financial Inc. (NYSE:EFC) is an externally-managed mortgage real estate investment trust (mREIT) under the guidance of Ellington Financial Management LLC. The Greenwich, Connecticut-based publicly-listed corporation has 64% of its portfolio in residential mortgages, 23% in commercial mortgages, and 8% in consumer loans, with the rest in other investments.
Of the 867 hedge funds being tracked by Insider Monkey, 10 held a stake in Ellington Financial Inc. as of Q3 2021, up from 7 in the preceding quarter. The total value of the holding is close to $59 million. Millennium Management is the leading stakeholder in Ellington Financial Inc., with an investment of over $21 million as of Q3. Ellington Financial Inc. declared a monthly dividend of 15 cents on December 7, payable on January 25.
As of October 31, the net book value of Ellington Financial Inc. stood at $18.35, which reflects a discount of 5% from the current stock price. The netbook value has risen by more than 50% in the last 12 months.
In addition to Ellington Financial Inc., Chimera Investment Corporation, and New Residential Investment Corp., Two Harbors Investment Corp. is a real estate dividend stock that is attracting hedge fund investments.
9. Starwood Property Trust, Inc. (NYSE:STWD)
Dividend Yield: 7.82%
Number of Hedge Funds: 12
Starwood Property Trust, Inc. (NYSE:STWD) disburses loans backed by real estate. The Greenwich, Connecticut-based corporation has a headcount of 350 employees and a portfolio value of $17 billion. Starwood Property Trust, Inc. does not have a corporate structure of its own and uses the expertise of the private investment firm Starwood Capital Group. Starwood Property Trust, Inc. paid out a quarterly dividend of 48 cents per share on October 15.
On December 8, Starwood Property Trust, Inc. (NYSE:SWTD) offered 16 million shares to the public. The offering is expected to generate proceeds of $397.1 million. The proceeds will be diverted towards acquiring more commercial mortgage loans and target assets for other corporate purposes. The company is insulated against rising interest rates as 96% of loans are floating rates. Furthermore, 91% of its loan portfolio comprises first-time mortgage loans. In terms of geographic diversification, 74% of Starwood Property Trust, Inc.’s assets are in the US, and the remaining 26% are around the world. In terms of asset class, the portfolio is diversified as well, with the largest holding in office assets at 30%.
8. Arbor Realty Trust, Inc. (NYSE:ABR)
Dividend Yield: 7.93%
Number of Hedge Funds: 13
Arbor Realty Trust, Inc. (NYSE:ABR) is a Uniondale, New York-based company that is a multifamily and commercial real estate lender. Arbor Realty Trust, Inc. stock price has also been able to outperform the industry benchmark exchange-traded fund (ETF) VanEck Vectors Mortgage REIT Income ETF (NYSE:MORT) in 2021.
On October 29, Arbor Realty Trust, Inc. reported its Q3 2021 results. Distributable EPS for the quarter was 47 cents as opposed to the consensus estimate of 44 cents. The corporation also increased its quarterly dividend by 1 cent to 36 cents per share. This was the sixth consecutive quarter that Arbor Realty Trust, Inc. has increased its dividend.
7. New York Mortgage Trust, Inc. (NASDAQ:NYMT)
Dividend Yield: 10.39%
Number of Hedge Funds: 15
New York Mortgage Trust, Inc. (NASDAQ:NYMT) is a New York-based REIT founded in 2003 that invests in mortgage-related assets. As of September 30, the investment portfolio value stood at $3.3 billion. The revenue of the business is generated through net interest income earned due to rental properties and non-interest income earned due to equity investments. New York Mortgage Trust, Inc. generates most of its interest income from its MBS portfolio and also from single-family residential facilities in Alabama, Florida, and Texas.
New York Mortgage Trust, Inc. recorded strong Q3 2021 results as it worked on lowering the cost of capital. The company took a one-time hit of $3.4 million to retire 7.875% Series C preferred stock at a cash redemption price of $25 per share into a 6.875% Series F preferred shares, reducing the cost of capital by one ppt.
New York Mortgage Trust, Inc. will undergo some administrative changes in 2022. Chairman and CEO Steven R. Mumma will be replaced by Jason T. Serrano in January 2022. Mr. Mumma will take over the role of Executive Chairman of New York Mortgage Trust, Inc. until December 31, 2022. He became the CEO in February 2009 and the Chairman of the Board in March 2015.
6. Annaly Capital Management, Inc. (NYSE:NLY)
Dividend Yield: 10.50%
Number of Hedge Funds: 15
Total Value of Hedge Fund Holdings: $34,941,000
Annaly Capital Management, Inc. (NYSE:NLY) is one of the largest REITs in the world with total assets of more than $94 billion and an experience of over two decades.
For Q4 2021, the New York-based corporation declared a per-share dividend of 22 cents. Annaly Capital Management, Inc. is focused on reducing its leverage and is therefore not looking into increasing its dividend. However, without the dividend hike, the one-year forward dividend yield stills look very attractive to investors. Annaly Capital Management, Inc. has reduced its leverage from 7.8x in Q3 2019 to 5.8x in Q3 2021.
Reducing its leverage will aid Annaly Capital Management, Inc. in buying MBS at a cheaper rate after the FED’s tapering starts in 2022. The price of the MBS will fall as the Federal Reserve sees its monthly buying decline by $12 billion to $15 billion, reflecting a decline of 12% to 15% to its overall number.
Apart from Annaly Capital Management, Inc., stocks like Chimera Investment Corporation, New Residential Investment Corp., and Two Harbors Investment Corp. are also on hedge funds’ radar due to high dividend yields.
5. Chimera Investment Corporation (NYSE:CIM)
Dividend Yield: 8.28%
Number of Hedge Funds: 16
Chimera Investment Corporation is a New York-based internally managed REIT. Founded in 2007, the company invests in asset securitization, residential mortgage loans, and mortgage-related securities. Chimera Investment Corporation has paid out $5.5 billion as dividends to its common and preferred stockholders since its inception.
Chimera Investment Corporation declared a quarterly dividend of 33 cents per share on December 2, payable on January 27, 2022. The ex-dividend date of the stock is December 29. The company used to pay out a quarterly dividend of 50 cents per share before the pandemic but was forced to cut it to 30 cents per share during the period. However, it was again increased to 33 cents per share in Q2 2021, reflecting the management’s desire to restore the dividend to pre-pandemic levels.
Chimera Investment Corporation reported its Q3 2021 results on November 3. The company’s netbook value stood at $12.32, making it one of the few stocks on the list, trading at a premium of more than 29%. Chimera Investment Corporation brought in $850 million worth of new loans during the quarter under its investment portfolio. The company is working on improving its profitability with a stable and long-term view.
4. New Residential Investment Corp. (NYSE:NRZ)
Dividend Yield: 8.99%
Number of Hedge Funds: 16
New Residential Investment Corp. provides mortgage and financial services industries with capital and services. The company aims to identify and invest in attractive assets and protect its existing portfolio, to generate strong risk-adjusted returns for the shareholders.
In a research note issued on September 29, Mark DeVries resumed coverage of New Residential Investment Corp. with an Outperform rating and a price target of $13. The analyst thinks that the corporation has increased its exposure in the “still-strong” mortgage origination industry through the acquisition of Caliber Home Loans in August 2021. The analyst also added that in case of a rise in interest rate, the stable underlying portfolio of New Residential Investment Corp. would decrease the volatility in earnings and provide stability to the book value.
3. AGNC Investment Corp. (NASDAQ:AGNC)
Dividend Yield: 9.22%
Number of Hedge Funds: 16
AGNC Investment Corp. (NASDAQ:AGNC) lands the third position on our list of 5 real estate dividend stocks with high yields. The Bethesda, Maryland-based company deals in agency MBS on a leveraged basis that is funded through collateralized borrowings structured as repurchase agreements. AGNC Investment Corp.’s (NASDAQ:AGNC) portfolio value stands at $84.1 billion as of Q3 2021.
AGNC Investment Corp. is one of the stocks on the list that pays out a monthly dividend. For November, the company declared a monthly dividend of 12 cents per share, payable on December 9. As of October 31, the company’s tangible net book value stood at $16.47 per common share.
On November 27, Mark DeVries at Barclays gave AGNC Investment Corp. an Equal Weight rating with a $17 price target. The analyst anticipates the core earnings of the company to outperform its dividend obligations and sees the stock as fairly valued.
2. MFA Financial, Inc. (NYSE:MFA)
Dividend Yield: 7.63%
Number of Hedge Funds: 17
MFA Financial, Inc. (NYSE:MFA) invests in residential mortgage products like residential MBS and residential whole loans on a leveraged basis.
During Q3 2021, MFA Financial, Inc. generated a GAAP net income of 27 cents, increasing by 13% on a sequential basis and comprehensively outperforming the consensus forecast of 11 cents. The economic book value of MFA Financial, Inc. stood at $5.27 per share, translating into a discount of 12.9% from the stock price. The company paid a dividend of 10 cents per share for the third quarter of 2021 on October 29.
In a report issued to investors on December 8, Stephen Laws at Raymond James upgraded the New York-based firm from Market Perform to an Outperform rating with a price target of $5.25. The analyst highlighted the stellar Q3 2021 results and upgraded MFA Financial, Inc. stock in anticipation of generating attractive portfolio returns in the future also. The analyst sees the bottom line of MFA Financial to receive some tailwind due to strong net interest income as a result of new investments and low cost of financing. Furthermore, MFA Financial, Inc. is expected to see more net gains on loans and a higher generation of business purpose loans (BPL) from the acquisition of Lima One.
1. Two Harbors Investment Corp. (NYSE:TWO)
Dividend Yield: 11.26%
Number of Hedge Funds: 31
Two Harbors Investment Corp. is focused on investing, financing, and managing Agency residential MBS, MSR, and other financial products. The Minnetonka, Minnesota-based company refers to these products as target assets and provides injection in the form of financing for real estate that can generate income.
In the Q3 2021 results released on November 8, Two Harbors Investment Corp. reported adjusted EPS of 24 cents as opposed to the consensus estimate of 20 cents. During the quarter, the corporation settled $29 billion worth of unpaid principal balance (UPB) and committed to acquiring $21 billion worth of UPB.
Two Harbors Investment Corp. is structured as a REIT for federal income tax purposes. A REIT is required to payout at least 90% of its annual taxable income as a dividend to its stockholders. The firm has been paying out dividends to its investors for the past 11 consecutive years. However, Two Harbors Investment Corp. could not maintain its continuous dividend growth as it was forced to resort to a dividend cut due to the pandemic in 2020. During Q3 2021, Two Harbors Investment Corp. paid out a quarterly dividend of 17 cents per share.
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This article is originally published at Insider Monkey.
