You may have noticed that interest rates may be lower than normal on savings accounts, certificates of deposits, and bonds. Finding a high yield has gotten tougher than ever. Despite this challenge, there are some investments that are paying out large dividend payments to investors.
Here are 3 stocks that are great for income seeking investors.
1. Hatteras Financial (HTS)
Hatteras is not quite the bargain that it was when the stock first came onto my radar last May. The stock was just $23 per share and offering a 7% yield. The stock is up 30% since then but the company still sports a great dividend yield. Hatteras Financial is yielding 14.7% and has no plan to cut the dividend anytime soon. I like the fact that Hatteras only invests in mortgages that are 100% guaranteed by the federal government.
2. Annaly Capital Management (NLY)
Annaly Capital is a riskier play for income investors because the company has one of the highest leverage ratios of 6.5 to 1. This bears watching considering that the company does not solely invest in government agency and GSE guaranteed debt. Annaly also earns dividend income from its subsidiaries which invest in non agency backed securities. Annaly’s current dividend yield is 15.2% and the stock trades at $18 a share. Annaly Capital is attractive because of the company’s longtime dividend history and has been able to consistently pay out a dividend to shareholders over the past 13 years. The average yield has been 10% over this time period.
3. Chimera Investment (CIM)
Chimera Investment Corp is a subsidiary of Annaly Capital. The stock is attractive to investors for two reasons. The first reason is its 17.8% dividend yield. At just $4 a share, the stock has one of highest current yields on the New York Stock Exchange. The other reason is the low debt to equity ratio. Chimera has a leverage ratio of just 1.3 to 1 which is very low for a REIT. The company is also trying to take advantage of the low interest rate environment by selling 125 million shares to raise capital for debt retirement and financing investment purchases.
Final Analysis
Keep in mind that these stocks are not for the faint of heart. All of these companies are real estate investment trusts (REIT) that derive the bulk of their income by purchasing mortgage backed securities. These REIT’s capitalize on the spread between the interest income earned on its mortgages and the borrowing cost to purchase mortgages. As long as interest rates remain low, these companies should prosper. Once interest rates start rising again, spreads will tighten and the dividend yields will drop.
Disclosure: I do own shares of Hatteras Financial.
Got to love a high end yield, but are you concerned there is a bubble in the commercial real estate market? I have heard this for a number of years now, but commercial doesn’t seem to be falling like many have predicted. And would you say it is ok to invest in commercial stocks as once the fall occurs you can just move your investment out and to a safer stock?
I have heard the same thing. I don’t believe that there is a bubble in commercial real estate. I have heard them talk about it for years but prices have not crashed. Many commercial property owners were able to refinance their debt and push their debt maturities back. I would feel comfortable investing in REIT’s because I think that many of them are trading at low prices and have the potential for growth. I would just make sure that they do not have any large debt repayments due over the next year or so.
I’ve heard that there will be another round of decline in the real estate market. This is why I have not yet made my move in real estate. Do you think it is still a good time to get into real estate? Thanks.
Good question Michelle. I think it depends on where you live and if you are buying commercial or residential real estate. In specific regions of the country, I think that residential real estate could still drop lower. I was just reading an article about how commercial real industry executives see a friendlier climate. Commercial real estate lending is improving and firms are finding it easier to refinance loans. I don’t think that a huge depression is coming in the commercial real estate market..
I wouldn’t worry too much about a bubble given how much most of these companies are investing in Government Paper. Also, the rates they are paying on their debt is so low, it makes sense to leverage.
You might also want to check out AGNC, which is a REIT that only invests in agency paper. It is leveraged and has a great yield.
I hadn’t heard of that one. I will have to check it out.
I want to learn how to invest in real estate because I think that is a good market to invest in, although I need to know where I can take some class in investing in the stock market.
How may I invest in real estate?