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  • Alex Pettee, CFA

Mortgage REITs: High Yield Is Back

  • Mortgage REITs - which endured punishing declines of 50-70% during the peak of the pandemic - have rallied back from the brink since mid-2020 to within shouting distance of record highs.

  • The pandemic-driven wave of dividend cuts has given way to a frenzy of dividend hikes this year with 25 mREITs increasing their payouts, pushing the average yield to nearly 8%.

  • After a sharp recovery, mREIT Book Values trended sideways in early 2021 amid declining rates and yield curve tightening, but third-quarter results should be helped by favorable yield-curve movements.

  • Mortgage REITs don't deserve their "ugly duckling" status within the REIT sector. Adding mREITs to a balanced equity REIT portfolio is a prudent strategy to hedge interest rate risk while adding immediate income.

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

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Disclosure: Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. In addition to any long positions listed below, Hoya Capital is long all components in the Hoya Capital Housing 100 Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website.

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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