Mortgage REIT stocks have strong growth prospects, driven by potential favorable market conditions, strong demand for mortgage-backed securities, and attractive dividend yields. Investors looking for exposure to the real estate and mortgage markets may find them an appealing investment option.
Therefore, investors could consider buying fundamentally strong REIT stocks Annaly Capital Management, Inc. (NLY), Chimera Investment Corporation (CIM), and AG Mortgage Investment Trust, Inc. (MITT), with solid growth prospects.
REITs, or real estate investment trusts, own or finance income-producing real estate across various property sectors. According to Nareit, approximately 170 million Americans are part of households that include investments in REITs.
REITs have a track record of delivering competitive total returns and have shown a low correlation with other asset classes, making them a valuable diversification tool for many investors' portfolios.
Mortgage REITs are poised for growth with low interest rates and increased mortgage origination activity. The resilient housing market and potential rate cuts this year create a favorable environment for investing in high-quality mortgage-backed securities. Diversified portfolios help manage risk and capitalize on opportunities in different mortgage market segments.
Moreover, investing in REIT is a safe and stable option from an investor's point of view due to the strict compliance with IRS regulations to pay 90% of their taxable income in the form of dividends, which makes it an attractive investment. The REIT market is projected to reach $333.01 billion by 2027, growing at a CAGR of 2.8%.
Considering these factors, let’s examine the fundamentals of the three REITs - Mortgage stocks, starting with the third in line.
Stock #3: Annaly Capital Management, Inc. (NLY)
NLY engages in mortgage finance, investing in agency mortgage-backed securities collateralized by residential mortgages, non-agency residential whole loans and securitized products within the residential and commercial markets, mortgage servicing rights, agency commercial mortgage-backed securities, and more.
NLY has been paying dividends to its shareholders for the past 26 years. Its annualized dividend of $2.60 per share translates to a dividend yield of 13.01% on the current share price. Its four-year average yield is 13.57%.
Over the past three years, NLY’s total assets grew at a 2.3% CAGR.
NLY’s net servicing income for the fiscal first quarter that ended March 31, 2024, amounted to $102.87 million, up 34.7% year-over-year. The company’s earnings available for distribution attributable to common stockholders stood at $320.90 million and $0.64 per average common share, respectively. As of March 31, 2024, NLY’s total assets amounted to $91.48 billion, compared to $86.83 billion as of March 31, 2023.
For the year ending December 31, 2025, NLY’s revenue is expected to increase 63.7% year-over-year to $1.39 billion. Its EPS for the quarter ending September 30, 2024, is expected to rise 1.5% year-over-year to $0.67. The stock has gained 3.2% year-to-date to close the last trading session at $19.99.
NLY’s POWR Ratings reflect this positive outlook. It has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
NLY has an A grade for Growth. It is ranked #6 out of 27 stocks in the REITs - Mortgage industry. Click here to see NLY’s Value, Momentum, Stability, Sentiment, and Quality ratings.
Stock #2: Chimera Investment Corporation (CIM)
CIM invests in a portfolio of mortgage assets, including residential mortgage loans, agency residential mortgage-backed securities, non-agency residential mortgage-backed securities, agency mortgage-backed securities secured by pools of commercial mortgage loans, business purpose and investor loans, and other real estate-related securities.
CIM has been paying dividends to its shareholders for the past 16 years. Its annualized dividend of $1.40 per share translates to a dividend yield of 10.26% on the current share price. Its four-year average yield is 14.42%.
CIM’s operating cash flow grew 9% year-over-year.
For the fiscal first quarter that ended March 31, 2024, CIM’s net interest income stood at $65.11 million. For the same quarter, its earnings available for distribution and earnings available for distribution per adjusted common share came in at $30.56 million and $0.12, respectively. As of March 31, 2024, CIM’s total liabilities amounted to $9.90 billion, compared to $10.37 billion as of December 31, 2023.
Street expects CIM’s fiscal 2024 EPS to increase 272% year-over-year to $1.45. Its revenue for the quarter ending June 30, 2024, is expected to rise 8.4% year-over-year to $71.20 million. CIM has gained 3.6% over the past month, closing the last trading session at $13.65.
CIM’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to Buy in our proprietary rating system.
It has a B grade for Growth, Value, and Quality. It is ranked #5 in the same industry. Get CIM’s Momentum, Stability, and Sentiment ratings here.
Stock #1: AG Mortgage Investment Trust, Inc. (MITT)
MITT operates as a residential mortgage real estate investment trust in the United States. Its investment portfolio includes residential investments, including non-agency loans, agency-eligible loans, re-and non-performing loans, non-agency residential mortgage-backed securities, commercial loans, and commercial mortgage-backed securities.
MITT’s annualized dividend of $0.47 per share translates to a dividend yield of 6.78% on the current share price. Its four-year average yield is 11.70%. Over the past three years, MITT’s dividend payments have grown at a CAGR of 38.7%.
Over the past five years, MITT’s revenue grew at a CAGR of 11.4%. Similarly, its total assets grew at a CAGR of 48.8% over the past three years.
MITT’s total net interest income for the fiscal first quarter that ended March 31, 2024, increased 47.9% from the year-ago quarter to $17.18 million. Moreover, its earnings available for distribution stood at $6.13 million, up 952.4% over the prior-year quarter. Also, its earnings available for distribution per share grew 600% year-over-year to $0.21.
As of March 31, 2024, MITT’s total assets amounted to $6.40 billion, compared to $6.13 billion as of December 31, 2023.
Analysts expect MITT’s revenue and EPS for the quarter ending June 30, 2024, to increase 46.9% and 136% year-over-year to $16.68 million and $0.19, respectively. Over the past nine months, the stock has gained 18.9%, closing the last trading session at $6.93.
MITT’s POWR Ratings reflect its robust prospects. It has an overall B rating, equating to Buy in our proprietary rating system.
MITT has an A grade for Sentiment and a B for Growth and Value. Within the REITs - Mortgage industry, it is ranked #3. Click here for the additional POWR Ratings of MITT (Momentum, Stability, and Quality).
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
NLY shares were trading at $20.20 per share on Monday afternoon, up $0.21 (+1.05%). Year-to-date, NLY has gained 7.84%, versus a 14.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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