4 Mortgage REITs With Temptingly High Dividend Yields

Real estate investment trusts (REITs) are some of the best options for investors looking to generate stable dividend income. This is because publicly traded REITs are required to distribute at least 90% of their taxable income to shareholders annually, as per Securities and Exchange Commission (SEC) rules. 

The need for high-dividend-paying stocks is rising as the markets snap out of its latest relief rally resulting from poor earnings posted by tech titans. Even though the Dow Jones Industrial Average (DJIA) index is poised to register the highest monthly gains in nearly 30 years this October, it is still down 9% year-to-date. As market volatility still remains sky-high, REITs with high dividend yields seem to be an ideal hedge against the current market risks. 

Claros Mortgage Trust Inc. CMTG

The Maryland-based REIT pays $1.48 as dividends annually, yielding 9.19% on its current share price. Despite the recent headwinds in the housing market, Claros Mortgage has been able to maintain its revenue channels, as it predominantly focuses on commercial real estate loans. 

Claros Mortgage CEO Richard Mack said, “While the macroeconomic outlook is creating some uncertainty in the marketplace, rising interest rates and lending spreads are translating into higher returns. Given our strong balance sheet and ample liquidity, we believe we are well positioned to capitalize on the attractive lending opportunities we are seeing in our target markets.” 

As the Federal Reserve is expected to maintain its aggressive stance and hike rates by another 0.75% next week, Claros Mortgage’s earnings and dividends are expected to remain robust at least through the end of this year. 

Annaly Capital Management Inc. NLY

With $86 billion in total assets, Annaly is a leading REIT in the residential mortgage finance market. The company pays $3.52 in dividends annually, yielding 19.08% on its prevailing price, which is higher than the industry average. Its four-year average dividend yield stands at 12.45%. 

While increasing mortgage rates have put pressure on housing demand, home prices are still up 40% since early 2020. To shield itself from market uncertainty, Annaly adopted a sound hedging strategy and increased capital allocation toward its mortgage servicing rights (MSR) platform. As of Oct. 26, Annaly is the second-largest purchaser of MSR year-to-date. 

Annaly’s non-generally accepted accounting principles (GAAP) earnings per share (EPS) amounted to $1.06 for the fiscal third quarter that ended Sept. 30, surpassing the consensus EPS estimate of $0.99. Moreover, for nine months ended Sept. 30, Annaly’s EPS amounted to $6.45, reflecting a 20.79% rise year-over-year. Barclays analysts recently upgraded Annaly’s rating from equal weight to overweight, according to Bloomberg. 

Dynex Capital Inc. DX

Dynex focuses on both agency and nonagency mortgage-backed securities (MBS). Dynex’s sound management, highly liquid balance sheet and substantial capital base have allowed it to maintain its position as one of the highest dividend-yielding REITs in the market. It currently pays $1.56 as dividends annually, yielding a handsome 12.95% on its current price. Dynex shares are up 3.43% over the past month. 

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The company’s non-GAAP earnings for distribution came in at $0.24 for the fiscal third quarter of 2022, regardless of a decline in the market value of its investment portfolio, thanks to its stellar hedging policies. Moreover, its total interest income rose 11.28% sequentially to $20.40 million. 

Though the Fed’s hawkish stance might limit Dynex’s growth opportunities, the company’s top-down macroeconomic focus and “up in credit, up in liquidity” policies should allow it to weather the downturn with ease. 

Arbor Realty Trust Inc. ABR

Arbor is a multibillion-dollar real estate investment trust headquartered in New York. With more than 25 years of experience, Arbor is one of the top 10 Fannie Mae DUS® Multifamily Lenders by volume (as of 2021). It is also a top Freddie Mac multifamily lender. 

Arbor stock has gained 20.26% over the past month, surpassing the Dow Jones Index’s historic 14.4% rise. The stock is up 12.44% over the past five days alone. Analysts expect Arbor’s upswing to continue in the near term. The stock has a consensus price target of $17.50, which indicated a 26.54% potential upside. 

Arbor Realty Trust pays $1.56 as dividends annually, yielding 11.28% on its current share price. Its four-year average dividend yield stands at 9.55%. Over the past five years, the company’s dividend payouts have risen at a compound annual growth rate of 16.8%. 

The REIT hiked its quarterly cash dividend to $0.39 in July, marking the ninth consecutive quarterly hike and a 30% rise in dividend payout over this time span. For the about-to-be-reported fiscal third quarter, Arbor’s revenue is expected to rise by 38.8% year-over-year, which is expected to translate to another massive dividend hike.

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