The Daily Dividend: 10% Dividend Yields From Mortgage REITs (NLY, CIM, ANH, MFA)

24/7 Wall Street is constantly on the lookout for dividend gains for investors.  While this is not due to any breaking news, there was a secondary offering this morning that we saw and it highlights the great returns that can be made from high-yielding mortgage REITs.  It also highlights some of the risks. Today’s Daily Dividend screen focuses on MFA Financial, Inc. (NYSE: MFA), Annaly Capital Management, Inc. (NYSE: NLY), Chimera Investment Corporation (NYSE: CIM), and Anworth Mortgage Asset Corporation (NYSE: ANH).

MFA Financial, Inc. (NYSE: MFA) is down 2.7% today at $8.26 after announcing that it was making a sale of 65,000,000 shares of its common stock.  Shares have traded in a range of $6.14 to $8.64 and the market cap is $2.3 billion before the effects of this $500 million or so offering.  Its latest dividend was $0.235 and if that were to remain static it would generate a yield of roughly 11.3%.  As with all mortgage-REITs, that quarterly payout fluctuates as it depends upon the mortgage related income and some 90% of that income has to be paid out as dividends to owners.

Annaly Capital Management, Inc. (NYSE: NLY) is another mortgage-REIT that usually screens for dividend yields of 10% and higher.  Shares are currently down by 0.6% at $17.79 and the 52-week trading range is $14.09 to $18.75.  Its most recent dividend was $0.64 and that was the lowest payout in six quarters.  Still, it yields about 14.3% today.  Traditionally, Annaly has been a winner by being able to play mortgage spreads.

Chimera Investment Corporation (NYSE: CIM) is closely tied to Annaly and originally had much of the same ownership.  The two still share the same corporate address.  Where Chimera is different is that it was originally meant to be more of a vulture fund that was reaching for yield and returns and employing some of the same criteria and discipline as Annaly.  Chimera trades at $4.28 and its 52-week trading range is $3.50 to $4.36.  Its current dividend of $0.17 was lower than the prior quarter but the same as the three prior quarters before that.  The current yield is closer to 15.8%.

Anworth Mortgage Asset Corporation (NYSE: ANH) is one that makes the 10% screen but is one that may need to be watched.  Its most recent $0.22 dividend was the lowest payout in ten quarters.  Even with the lower payout, the yield comes to 12.4% based upon its $7.06 price and its 52-week range is $5.74 to $7.52. It also invests primarily in guaranteed or federally sponsored mortgages and earnings its income on the difference between the yield on its mortgage assets and the cost of its borrowings.

The benefits here evident: high-high dividend yields.  The risks are less evident but need to be considered.  The current environment of low interest rates gives a huge spread for these mortgage-REIT players to earn substantial income.  If you can borrow at 2% and collect 5% and higher in income, imagine how much more can be made if leverage is used.  As rates rise or as the yield curve flattens out, those opportunities will diminish. Another large risk is that mortgage-REITs tend to raise capital routinely via dilutive secondary offerings.

Double-digit yields are great, but as always… Know what you are investing in.

JON C. OGG