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  • Alex Pettee, CFA

Mortgage REITs: High-Yield Bargains

  • Best of Times and Worst of Times: Mortgage REITs endured punishing declines during the pandemic, but have nearly tripled from their lows and are back within shouting distance of pre-pandemic highs.

  • The wave of dividend cuts has given way to a frenzy of increases this year as 20 mREITs have raised their payouts. Mortgage REITs now pay an average yield of 8.6%.

  • The flattening yield curve has pressured mREITs in recent weeks, pulling valuations back towards more attractive levels. The ongoing strength of the residential housing sector remains a strong tailwind.

  • We believe that excluding mREITs from real estate portfolios is imprudent. Despite the plunge last year, mortgage REITs have delivered superior total returns compared to equity REITs over the past half-decade.

  • Mortgage REIT earnings season kicks off next week. The three trends we're watching: 1) Dividend Increases, 2) Updated Book Values, and 3) Commentary on the effects of expiring pandemic relief measures.

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Disclosure: A complete list of holdings and Real Estate and Housing Index definitions and holdings are available at Hoya Capital Real Estate advises an Exchange Traded Fund listed on the NYSE. Hoya Capital is long all components in the Hoya Capital Housing 100 Index.

Additional Disclosure: It is not possible to invest directly in an index. Index performance cited in this commentary does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. Data quoted represents past performance, which is no guarantee of future results. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy.

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