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.
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