Income Investors: Consider These 6 High-Yielding REITs:
REIT’s tend to deliver predictable and stable earnings. Their earnings come from the spread between the yield
on their assets and cost of borrowings. With the Fed holding off on tightening monetary policy for now, REIT’s
are a worthwhile play on the current low interest environment. Intelligent investors should note that should
short term interest rates rise, earnings will be affected and hurt sentiment towards these stocks.
Listed below are 6 REIT’s worth considering:
Armour Residential REIT (ARR)
Armour Residential is focused on investing in mortgage backed securities guaranteed by US Government
chartered entities such as Fannie Mae, Freddie Mac and Ginnie Mae. Armour Residential had a great 1
quarter in 2011. Net Revenues were $10 million vs $592,112 for Q1 2010. Net Income was $8.6 million vs
$305,833. A highlight is its balance sheet, which is free of long term debt.
Current dividend yield is 19.5%. On June 15 , the board of Directors announced 3 quarter monthly dividend
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payments of $0.12 per share payable on 28 July, 30 August and 29 September. This payout policy surely
must appeal to income investors. This is the only stock in this list that pays monthly dividends.
The stock is currently trading within its 52 week high/low range and has exhibited little volatility over the last
12 months. Its trailing 12 month P/E ratio is 6.1 which is discounted against its peers.
In summary, ARR is financially stable, pays monthly dividends and is fairly valued. Investors would be wise in
considering this issue.
American Capital Agency Corporation (AGNC)
American Capital invests in residential pass through mortgage securities and collateralized mortgage
obligations. These investments consist of securities whose regular payments are guaranteed by the US
Net Income for 1 quarter was $133, 543 million vs $53,150 for same period last year. A very satisfying 251%
increase. Due to a nearly 4 fold increase in outstanding shares, dividends for Q1 2011 and Q1 2010 were the
same, $1.40 per share.
Recent Quarterly earnings of $1.36 were in line with analyst estimates. A dividend of $1, 40 per share was
declared, the same as Q2 2010.
The current dividend yield is 19.3%, highest amongst its peers. This will be enticing to income investors. It’s
currently trading within its 52 day high/low range. Compared to the overall Mortgage REIT Subsector, the
current valuation is at a discount based on trailing and forward P/E ratios.
Over the 12 months to July, the price has been relatively stable, though, from May 2011, the price has been on
a downward path. Investors may want to consider this as suitable buying opportunity.
American Capital also offers a direct stock purchase plan.
Annaly Capital Management (NLY)
Annaly Capital Management primary business is to own and manage a portfolio of mortgage related assets. It
has been stocking up on its holdings in US agency mortgage securities. This year, it has issued over 180 million
common shares to raise capital for asset purchases.
Additionally, Annaly operates a REIT subsidiary, FIDAC, which is focused on managing fixed income securities.
FIDAC receives annual advisory fees that are related to the amount of gross assets it manages. These fees are
significant. In 2010, FIDAC earned roughly $58.1 million by holding $20.1 billion worth of assets. Going
forward, FIDAC will be a key earnings driver.
The balance sheet is healthy, its debt/equity ratio well within that of its peers. Management tries to maintain
the ratio between 8:1 and 12:1. For 2010, the ratio was around 6,7.
The stock has steadily edged upwards during the May and June, when the broader market declined. It’s been
trading within its 52 day high/low range throughout 2011, making it hardly volatile. Annaly’s dividend yield is
15.1% with 2 quarter payout of $0.65 per share.
Overall, this stock/company offers price stability, an exceptional dividend yield, a diversified earnings base and
a healthy balance sheet. The company also offers a direct stock purchase program, another feather in its cap.
Hospitality Prop (HPT)
Hospitality Property Trust owns over 280 hotels and 185 travel centers in 44 US states, Puerto Rico and
Canada. Major hotel tenants are Travel Centers of America, Marriot and InterContinental Hotels Group.
First quarter revenue was $282 million, an 11% increase for the same period last year.
Their management recently concluded a rent re-structuring agreement with Marriot. Under the terms of this
agreement, Marriot guarantees 90% of the rent through to 2017. This guarantee assures Hospitality that it will
get no less than 10% under its minimum rentals. Similar agreements are in the pipeline with InterContinental
and Travel Centers of America.
Its balance sheet is one of the strongest in its industry with a debt/equity ratio of 0.74. On the contrary, the
cyclical nature of the industry is a concern worth noting.
This stock’s current yield is 7.2%. It has declared a dividend of $0.45 per share for the 2 quarter, same as last
This stock has steadily edged up over the past 12 months exhibiting little volatility. With regards to valuation,
the trailing P/E of 20.8 is at a 24% premium to its 5 year average of 16.8, whilst, its forward P/E is at a 6 %
discount to its 5 year average.
Investors should look to the current market weakness for a good entry point.
Omega Healthcare Investors Inc. (OHI)
Omega Healthcare invests in and provides financing for long term care facilities in the US. Major tenants
include Sun Healthcare Group and Communicare Health Services.
Whilst revenues increased 20% year on year, $75 million vs $58.7 million, Omega incurred a net loss of $5.9
million vs net income of $21million in 2010. No doubt, this was due to a 140% increase in operating expenses,
$55.7 million as opposed to $23.2 million in 2010. This increase was due to costs associated with the
CapitalSource acquisition and a $25million provision for impairment on real estate assets for 2011.
This issue current dividend yield is 7.8%. A dividend of $0.40 per share was declared on 15 July. Investors
should bear the following in mind:
- An increase in the number people from the baby boomer generation retiring. Undoubtedly, they are
Omega’s major tenant’s primary customers.
- Omega’s funding model is safe from short term interest rate fluctuations as opposed to REIT’s that invest in
mortgage backed securities.
The stock is currently trading within its 52 day high/low range, displaying little volatility. However, since April
28 , the stock has been on a downward trend. To some investors, this presents a good entry point.
Colony Financial Incorporation (CLNY)
Colony Financial focuses on acquiring and managing commercial mortgage loans, REO properties and
commercial mortgage backed securities.
The first 2 quarters of 2011 has been splendid for Colony. Net Income for the 1 quarter was up 352%, $7.4
million vs $2.1 million for the same period last year. 1 quarter dividend of $0.32 was declared, a 100%
increase on Q1 2010. A financial highlight, the balance sheet shows no long term debt.
Colony declared a 2 quarter dividend of $0.32 per share vs $0.21 per share in 2010, a 52% increase. With 2
quarter earnings report due shortly, the results will be no doubt be pleasing to read. Its current dividend yield
The stock’s current price is within its 52 day high/low range. However, since March, the price has been on a
downward trend. This could be viewed as a suitable buying opportunity for an enterprising investor.