How Other REITs Are Faring
Other REITs are currently seeing somewhat similar results, as the interest rate compression has caught up on the asset side, and the rates that mREITs can earn have fallen. This essentially reduces the spread that REITs can collect in the middle. Another big factor that has had an effect on REITs is the Federal Reserve’s stepping in to purchase billions in mortgage-backed securities. This has had the effect of subsequently pushed up prices, and at the same time reduced yields.
For instance, American Capital Agency Corp. (NASDAQ:AGNC) has seen a decrease in its net book value per share, down from $32.49 to $31.64 in just the fourth quarter of 2012 alone. This follows a first quarter 2012 drop in NBV from $25.21 to $23.43 per share. American Capital Agency’s fourth quarter results were mixed. The company’s net spread income per share was $0.89, which was short of the Zacks Consensus Estimate of $1.01. However, net interest income was $423 million, which was higher than the Zacks Consensus Estimate of $350 million.
While this may appear to be negative, American Capital’s dividend yield of 16% ($1.25 per share) still remains healthy – and the company had also maintained the same dividend throughout 2012. This is in contrast to some of the others in the REIT arena such as Annaly Capital Management, Inc. (NYSE:NLY) , which has had a steadily decreasing dividend since the second quarter 2011.
Currently, Annaly pays shareholders $0.45 per share, equating to a dividend yield of just over 12%, with earnings per share of 1.74. The good news here is that Annaly’s shares were recently raised from a Neutral rating from Underperform. This may be due in large part to the company’s reporting of a fourth quarter 2012 gain of 32 cents per share – even though this missed the estimate of 37 cents. The bad news is that it is expected that the firm will be steadily lowering its dividend over the near term.
Two Harbors Investment Corp (NYSE:TWO) , another in the REIT arena, has also seen poor earnings reports, along with a high dividend yield. This company’s yield stands well above 17%, paying out between $0.36 and $0.55 per share. This REIT could be a great growth and income play – especially if investors can pick up additional shares in the $12 range.
Resource Capital Corp. (NYSE:RSO) is also paying out a healthy dividend yield of just under 13%. This REIT, focusing primarily in the commercial sector, actually has posted some positive numbers of late, including a return on equity of nearly 10%. This REIT also came in at 2012 annual earnings per share of $0.58, up from the firm’s 2011 annual EPS result of $0.56.
The use of leverage has always been the cornerstone of the REIT industry, and it will likely continue to be. This has played a big part in the ability of REITs to offer their investors consistently strong dividend yields.
Although the shares of CYS have been recently downgraded from their “Buy” rating, I feel that this REIT can still offer investors a consistently strong dividend yield – especially if additional shares can be picked up in the $12 range.
The article Will This REIT Boost Your 2013 Portfolio? originally appeared on Fool.com and is written by Maxwell Fisher.
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