NEW YORK, NY -- (Marketwire) -- 11/12/12 -- Shares of high yielding REITs have been relatively flat this month. The Vanguard REIT ETF -- which tracks the performance of an index that measures the performance of publicly traded equity REITs -- has stalled after the Federal Reserve in September announced plans to purchase $40 billion in mortgage-backed securities a month. Five Star Equities examines the outlook for diversified REITs and provides equity research on Chimera Investment Corp. (NYSE: CIM) and Annaly Capital Management, Inc. (NYSE: NLY).
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Investors have long been attracted to the high yields of mortgage REITs, which currently averages around 13 percent, nearly 7 times the average dividend yield of the S&P 500. The Fed's announcement has caused drops in spreads, bond yields and homeowner's borrowing costs, and as a result company's earnings and dividends have been under pressure.
"Through the use of leverage, these REITs have yields in the midteens. At this time, mortgage REITs are benefiting from historically low short-term rates, but tightening spreads, or a sudden freeze in the credit markets, would have a significant negative impact on these firms," Morningstar analyst Patricia Oey wrote in a report.
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Chimera Investment Corporation is a specialty REIT managed by Fixed Income Discount Advisory Company (FIDAC), a wholly owned subsidiary of Annaly Capital Management. The company invests in residential mortgage-backed securities (RMBS), residential mortgage loans, commercial mortgage loans, real estate-related securities, and other asset classes. Chimera presently pays an annual dividend of 36 cents for a yield of around 14.1 percent.
Annaly manages assets on behalf of institutional and individual investors worldwide. The Company's principal business objective is to generate net income for distribution to investors from its investment securities and from dividends it receives from its subsidiaries. The company currently offers investors an annual dividend of $2.00 per share for a yield of roughly 13.35 percent.
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