REIT dividends can be taxed at different rates because they can be allocated to ordinary income, capital gains and return of capital. The maximum capital gains tax rate of 20 percent applies generally to the sale of REIT stock. Learn more about taxes and REIT investment.
Interest Rate Risk. Credit Risk. The bulk of mortgage securities purchased by residential mREITs are agency securities backed by the federal government, which present limited credit risk. The degree of credit risk for a particular security depends on the credit performance of the underlying loans, the structure of the security that is, which classes of security are paid first, and which are paid later , and by the degree of over-collateralization in which the face amount of the mortgage loans held as collateral exceeds the face amount of the RMBS or CMBS issued.
Changes in interest rates or borrower home sales affect the probability that some borrowers will refinance or repay their mortgages. When such a refinancing or repayment occurs, the investor holding the mortgage or MBS must reinvest the proceeds into the prevailing interest rate environment, which may be lower or higher. Here's an example of how mREITs work. There are almost two dozen mREITs focused on home financing and another 18 focused on the commercial mortgage sector.
However, a few mREITs stand out as strong performers in this volatile sector:. Data source: Ycharts and Google Finance. Market cap and dividend yield as of Oct. It focuses on making loans backed by multifamily properties, although it also finances student housing, land, healthcare facilities, offices, single-family rentals, and other property types.
The real estate financing company has three business platforms:. Arbor's business model provides it with multiple income streams. The mREIT produces recurring long-dated cash flow from servicing fees, escrow revenue, and net interest income.
It also generates one-time origination fees. This strategy gives it an advantage over mREITs focused solely on making money via the net interest margin. Its diversified operating platform and multifamily focus have enabled it to generate fairly steady earnings in all market cycles. Arbor delivered its ninth consecutive annual dividend increase in That's notable since mREIT dividends have historically fluctuated because of the impact interest rates have on their net interest margin.
It's the first U. Hannon Armstrong generates both investment and fee income. It uses investor capital and other funding sources to make debt and preferred equity investments in a range of climate-positive companies and projects. It makes these investments on its balance sheet. Here are a few that investors should be aware of:. REITs give investors a way to tap into the real estate market without having to own, operate, or finance properties themselves.
In general, equity REITs may be attractive to buy-and-hold investors looking for a combination of growth and income. Mortgage REITs, on the other hand, may be better suited for risk-tolerant investors looking for maximum income, without much focus on capital appreciation. Real Estate Investing. Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content. Create a personalised content profile.
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This makes sense. AGNC can borrow cheaply to juice its returns, and we as investors pay a premium to have access. But during the pits of the pandemic, AGNC dipped deep into discount territory. The yield is a very competitive 8. That's a little lower than some of its peers, but remember: We're paying for quality here.
Unlike Annaly and AGNC, which both focus on plain-vanilla single-family home mortgage products, Starwood focuses on commercial mortgage investments. This time last year, Starwood's property portfolio had its points of concern. As a commercial mortgage REIT, it had exposure to hotels, offices and other properties hit hard by the pandemic. But as life gets closer to normal by the day, those concerns are evaporating. And frankly, they were always overstated.
So, even if delinquencies had become a major problem, Starwood would have been able to liquidate the portfolio and safely be made whole. Not too shabby. Ellington runs a portfolio consisting mostly of agency MBSes, but the company also invests in private, non-agency-backed mortgage securities and other mortgage assets. As of the company's latest earnings report, the portfolio was weighted almost exclusively to agency securities.
Ellington opportunistically snapped up non-agency MBSes when prices collapsed last year and has been slowly taking profits ever since. Despite being a small operator, Ellington navigated the COVID crisis better than many of its larger and more-established peers. Today, the shares yield a mouth-watering 9. Considering that the industry itself trades very close to book value, that implies a healthy discount for EARN shares. Some mortgage REITs had it worse than others last year.
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