2 Mortgage REITs That Could Rise Above the Rest

Alexandra Scaggs Real Estate AGNC CMO AGNC Investment Capstead Mortgage Banking Mortgages/Real Estate Credit Trusts/Funds/Financial Vehicles Closed-end Funds/Investment Trusts Real Estate Investment Trusts Banking/Credit Real Estate/Construction Financial Services Investing/Securities Mortgage REITs Real Estate North America United States Corporate Funding Corporate Debt Instruments Corporate Actions Corporate/Industrial News Asset Backed Securities Content Types Factiva Filters C&E Industry News Filter AGNC BAC CMO I/BNK I/IAV I/REI I/RMT M/FCL M/RECN N/AST N/CAC N/CNW N/COB N/DJN N/MBS N/WER R/NME R/US Barrons.com Barrons Blogs Wires CODES_REVIEWED Companies Real Estate US author Alexandra Scaggs author|Alexandra Scaggs topicid 8576 name Alexandra Scaggs extractedtext Alexandra Scaggs rank 1 codetype author code alexandra_scaggs nameformat surname_first author Alexandra Scaggs id Alexandra Scaggs barrons_display_subject BARREAST barrons_display_subject|BARREAST codetype 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status modified code BARUS wordcount 412 wordcount|412 id facebook id|facebook news_tab_url https://www.barrons.com/articles/2-mortgage-reits-that-could-rise-above-the-rest-51588090747 2 Mortgage REITs That Could Rise Above the Rest 2 Mortgage REITs That Could Rise Above the Rest 2 Mortgage REITs That Could Rise Above the Rest

AGNC Investment and Capstead Mortgage focus on safer agency-guaranteed mortgages, Bank of America analysts note.

2 Mortgage REITs That Could Rise Above the Rest

AGNC Investment and Capstead Mortgage focus on safer agency-guaranteed mortgages, Bank of America analysts note.

https://ir.agnc.com/news-releases/news-release-details/agnc-investment-corp-declares-monthly-common-stock-dividend-012 mailto:alexandra.scaggs@barrons.com 2 Mortgage REITs That Could Rise Above the Rest By Alexandra Scaggs

There could be a couple of standout survivors from last month’s meltdown in mortgage real-estate investment trusts, according to Bank of America.

Mortgage REITs buy mortgage-backed securities with borrowed money. Like other REITs, they have to pay out 90% of their taxable income as dividends to get preferential tax treatment.

After a 54% year-to-date decline in the mortgage REIT market, many of those vehicles now offer yields above 10%—out of those that are still paying dividends. At least eight mortgage REITs have suspended their dividend payments, according to Bank of America. And more dividend suspensions or reductions could be on the way.

So investors may want to consider a pair of mortgage REITs that focus on safer agency-guaranteed mortgages. Agency mortgages are being purchased by the Federal Reserve as part of its coronavirus relief efforts.

Those mortgage REITs are AGNC Investment Corp. (ticker: AGNC) and Capstead Mortgage Corp. (CMO). On Tuesday, the bank upgraded the two mortgage REITs to Buy from Neutral.

“We expect significant agency MBS purchases by the Fed to provide both liquidity support and provide a reasonable floor for valuations,” the analysts wrote.

AGNC Investment still offers a nearly 12% dividend yield, even after it cut its dividend by 25% earlier this month in response to the selloff. Capstead’s yield is around 10%.

AGNC will also report earnings on Wednesday. The mortgage REIT gave investors a preview earlier this month, and said it had an estimated tangible net book value of $13.60 per share.

Some other mortgage REITs that borrow money to buy riskier non-agency-guaranteed loans struggled to meet margin calls from lenders last month as the value of the mortgages in their portfolios dove, forcing some mortgage REITs to sell securities to raise additional cash.

Bank of America also cut its rating on mortgage REIT Pennymac Mortgage Investment Trust (PMT) to “Neutral” from “Buy.” It says that Pennymac’s earnings will decline, thanks to declining servicing revenues and declining values in one niche market for mortgage-backed securities where the REIT is especially active.

Write to Alexandra Scaggs at alexandra.scaggs@barrons.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.