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apartment REITs
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farmland REIT investing
mortgage REITs

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  • Alex Pettee, CFA

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.

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