Mortgage REITs: High Yield Opportunities
Mortgage REITs don't deserve their "ugly duckling" status within the REIT sector. Adding mREITs to a balanced REIT portfolio is a prudent strategy to hedge interest-rate risk while adding immediate income.
While most REIT sectors have been under pressure this year by the sharp rise in long-term interest rates, mortgage REITs have delivered notable outperformance as the yield curve has steepened.
Following a wave of more than two dozen dividend hikes last year, mREITs now pay an average yield of 8.23%, a hearty premium to the 2.79% average for equity REITs.
Mortgage REITs represent roughly 15-20% of our overall REIT asset allocation, which we view as an appropriate target for the average REIT investor seeking dividend income.
Mortgage REIT earnings season kicks off later this month. The three trends we're watching: 1) Updated Book Values; 2) 2022 Earnings Guidance; 3) Commentary on Fed policy and dividend sustainability.