A Few More REITs for Your IRA: Capstead Mortgage Corporation (CMO), Dynex Capital Inc (DX)

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PennyMac Mortgage Investment Trust (NYSE:PMT)

PennyMac Mortgage Investment Trust is a newly-formed finance company that invests mainly in residential mortgage loans and mortgage-related assets. Like Invesco, PennyMac’s objective is to provide attractive returns to its investors through dividends and share price appreciation.  PennyMac attempts to achieve this goal by investing in distressed residential mortgage loans.  In other words, it invests in mortgage loans that are distressed and therefore loans that it can presumably acquire at discounts to their unpaid principal balances.  On the positive side, PennyMac is trading at a P/E multiple of around 8, has a dividend yield of around 9%, and has demonstrated that it has the potential to grow at phenomenal rates.  On the negative side, this company trades at a price to book ratio of greater than 1 and does not have a long track record.  All things considered, as long as the economy and PennyMac’s underlying fundamentals remain strong, this company is poised to deliver handsome returns through its dividend and solid share price appreciation.

My Foolish Take

At face value, all of these REITs seem like solid investments.  To choose the REIT or REITs that are right for you, start by looking at the total return.  Then consider whether or not the company has demonstrated the ability to increase earnings, whether or not the company is conservatively leveraged, whether or not management has efficiently reinvested available cash flow, and whether or not the company has a solid operating strategy.  If you invest in a REIT, remember to monitor the company’s balance sheet and capital expenditures.

The article A Few More REITs for Your IRA originally appeared on Fool.com and is written by Ryan Peckyno.

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