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JMP Managing Director Steve DeLaney on the attractive yields of mortgage REITs.
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All what the fact that the housing prices nationwide.
Have plummeted 34%.
Since 2002 that's just on aperture -- Phoenix don't even ask about that market looks but.
That's scare you off from investing in the sector but through a side window -- this outside -- don't work -- reits real estate investment trusts.
Are one of the highest -- options available out there and investors are flocking to them -- As they stop waiting for growth in in basic individual housing markets and start banking on payday how do you do that what -- these days.
Joining us now to tell us -- a Fox Business exclusive Steve Delaney managing director and senior research analyst at.
And -- first -- viewers why the structure of these things -- south such hefty dividends we're talking 1213 1516%.
Sure -- back in 1961 congress passed a law creating.
But that I passed the tax law creating reits in the first place in the objective was to give small individual investors an opportunity to invest in real state is an asset class.
Obviously wealthy people could buy office buildings and shopping centers and in doing so they wanted to avoid double taxation and real -- offers cash flow they wanted that cash flow not to be retained to be paid out to the individual investors civilian -- these companies to pay out at least 95% of their earnings each year in dividends so.
For the last forty years or fifty years reits have been known as one of the best dividend paying.
Stocks out there are three different types of the mortgage REIT specifically that you're talking about there's something called agency there's non agency and then there's.
I guess is that the other one which is from a commercial commercial so let's talk to some of the names first and we'll start with agency -- And it's we look at them let's throw some names here -- capital agency that I can't believe this dividend of sixteen point 3% right America I get nervous because this looks too good to be.
Yeah that's -- great point anytime you see a dividend that high you're assuming that you know this the stock prices come down because it's anticipating the dividend will be cut.
Not the case with more retreats while while these dividends half.
Are subject to change over time keep in mind they pay -- 95%.
Of their earnings and there.
They are these companies are financed companies they're not tech companies that depend on sales is not a lot of volatility.
I think of them is non bank banks because they have a portfolio of mortgage securities.
That are finance.
It's OK so this one on your screen at sixteen point 3% dividend folks that's that's pretty amazing let's go to the next one which is also agency this is called -- -- This pays out about -- twelve point 8% of it right almost 13% caps dead ticker CM I was the oldest mortgage treat founded back in 1985.
The reason -- dividend is a little lower is they invest in shorter term mortgages adjustable rate mortgages.
They have little less risk in terms of the change in asset value that fed changes policy.
But -- twelve or 13% is still attractive against a 2%.
Here Fred I I'm pretty sure that in my portfolio that out -- -- look at I don't have a 12% dividend yield and I would mention -- -- invoked the example of that we just mentioned.
There's no credit risk all of the assets they own or guarantee about that Freddie Mac and Fannie Fannie and Freddie OK so which brings us to non agency which -- not guaranteed but these also have -- attractive yields not agency there's two harbors.
Which yields fifteen point 5% and then we've also got die next capital writes yield there DX.
And -- set your intro today talking about the distress in the housing market.
Out of that distress has come opportunity.
And the reason that it TWO.
Two harbors can generate those types of returns is that they're able to purchase today.
Legacy -- that were created in 06 and 07.
At forty and fifty cents on the dollar of principal and general rate.
Almost double digit yields on the securities your final one that is a commercial real estate investment trust these are also mortgages and these names let's get to them pretty quickly if we could we're looking at C access and an RF northstar realty -- -- system but the -- this investment in northstar realty.
Or two of approximately ten commercial mortgage reits -- -- not involved in the housing market but obviously office buildings.
Our multi family retail commercial property has also suffered in the weaker economy.
Therefore their legacy securities that can be purchased at a discount more importantly with property values on commercial coming down thirty some percent as well.
The new loans that are being made are being made it very.
-- down appraised values in the underwriting is exceptionally clean well reits are 200 billion dollar market you've picked apart and made it understandable for our viewers thank you very much Steve we appreciated my pleasure -- Dana Delaney of -- -- his managing director -- what what we'll do was in case you missed some of these we will put them right up on our FaceBook dot com slash Liz -- page.
So you can see out -- that's pretty attractive at the moment 60% -- and he'll thank you Steve very much.
