Home News 2 Big Discounts On Mortgage REITs

2 Big Discounts On Mortgage REITs

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It’s time to dance.

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Graphs, images, and tables are better than words, so get ready. Ratings and outlooks covered here follow Scott Kennedy weekly updates in REIT forum. Your continued feedback is greatly appreciated, so please leave your suggestions in the comments.

We are going to keep this fast. There are several shares I would like to touch on, so I will briefly cover each topic.


I wrote this article on November 3rd. Mortgage REIT and Preferred Stock OpportunitiesThere were 2 big separate points. One was about preferred stock and the other was to highlight his one of the stocks we generally chose.

With respect to the preferred stock, he argued that there was no rational basis for investors to value NLY-F at $24.00, NLY-G at $20.87 and NLY-I at $20.63. Relative prices were simply ridiculous. I wrote:

“The performance difference is ridiculous. AGNCN and NLY-F have about the same number of investors (including dividends) year-to-date. Amazing, how much would you pay to let the stock float two years ago? For real stupid idea. Who pays 20% so that you can recover about 11% over two years instead of recovering about 8.3%? An additional 3% or so over two years equates to 20%? Because the math still works. Paying 20% ​​and getting about 6% back is a terrible idea.

Paying more today than you can expect to get in the future is not an investment. It’s literally the opposite of investing. terrible. “

what happened?

Since then, NLY-G and NLY-I shares have completely dominated NLY-F. You can use the $100,000 chart to see relative valuation changes and see how much investment you needed the day before to reach $100,000 today.


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If you’re unfamiliar with reading that chart, you can use the stock price change since the article was published.


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If all preferred stocks of the same REIT have fixed-to-floating characteristics, this is a large swing in relative performance.

If there is an opportunity to increase the return, we welcome it. If not, good luck next time.

Relative valuation today is dramatically more rational. Stocks aren’t perfect when valued at discounted cash flows, but the difference is dramatically reduced. In my opinion, today’s ranking, from most attractive to least attractive, would be:

  1. NLY-I is $24.69
  2. $22.98 NLY-F
  3. $23.39 NLY-G

Currently, the difference between NLY-I and NLY-F is small. NLY-I’s higher rate nearly offsets the price difference in his next 7 payouts. Focusing on short-term predictions, he could actually have a slight edge over NLY-F. For investors who just want to buy and hold, the two stocks are about the same.

NLY-G may appear more attractive to some investors due to its greater call value “upside” than NLY-F. However, the floating spread difference is significant, and his NLY-F is more appealing than his NLY-G today. I don’t think NLY-G will be called.

There are still some opportunities for inter-stock trading. We will be preparing another article on this topic for members of the REIT Forum.

Rhythm Capital Co., Ltd.

Our other commentary is from Rith Capital Corp. (RITM). As it stands, RITM is still attractive, but prices have bottomed out.


looking for alpha

As it stands, RITM is still trading at only 72% of its estimated book value per share. As a result, RITM still has significant upside and remains bullish on RITM. The 10% rise since that call was good, but should go further. The stock has a dividend yield of 11.3%.

Arlington Asset Investment Corporation

Before I say anything else, I would like to remind investors that we are actively trading in this sector. A no-dividend mortgage REIT could be a viable option if you have good reason to believe that the stock price will eventually rise. However, don’t expect the price to increase over the years. We buy and sell positions based on changes in the price-to-book ratio. It’s just a better technique. Our strategy has resulted in dramatically better performance than the sector. From the beginning of 2016 he was up 107.27% to the end of October. MORT (one of the largest mortgage REIT ETFs) delivered only 8.7% during that period. Arlington Asset Investment (AAIC) that period was even worse. But AAIC’s terrifying performance continued until mid-2020. REITs have done a much better job of protecting their book value these days and are still trading at deep discounts.

AAIC was able to improve book value per share results by repurchasing its common and preferred stock at significant discounts. This is a technique that more REITs should learn to use.of Scott’s Update on AAIC, OCSL, and PFLT Q3 2022 Earningshe wrote:

AAIC also reported a BV increase of $0.07 per common share due to the repurchase of 400,000 net common shares and 100,000 preferred shares in the third quarter of 2022. The weighted average price paid for common stock was $3.14 per share. $20.54 per share of preferred stock.

As it stands, AAIC is still trading at a price-to-book ratio of 0.46 (using book-value-per-share estimates). We believe the AAIC will significantly lower its expected book value of $6.65, but is up significantly from $3.06. However, as AAIC is a very small mortgage REIT, investors should be aware that liquidity is fairly weak.

stock table

We conclude the rest of the article with tables and charts we provide to help our readers track both the common and preferred sectors.

Include a brief table of common stocks that appear in the table.

Let the images begin!

Mortgage REIT Chart

Note: Charts in published articles use book value per share from the most recent earnings release. The current estimated book value per share will be used for target achievement and trading decisions. It is available on our service, but estimates for them are not included in the table below. It does not show a yield indicator.

Mortgage REIT Price to Book Ratio Chart

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Mortgage REIT Dividend Yield Chart

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Mortgage REIT Income Yield Chart

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Commercial Mortgage REIT Chart

Commercial Mortgage REIT Price to Book Ratio Chart

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Commercial Mortgage REIT Dividend Yield Chart

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Commercial Mortgage REIT Earnings Yield Chart

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BDC chart

BDC Price to Book Ratio Chart

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BDC dividend yield chart

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BDC earnings yield chart

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preferred stock chart

I changed the coloring a little. I had to adjust to include that the first fixed-to-floating stock moved to floating rate. If the stock has already fluctuated, the stripped yield may differ from the “Price Volatility Yield” due to changes in interest rates. For example, NLY-F already has a floating interest rate. However, he only resets the fee once every three months. Yield stripped is calculated using future projected dividend payouts, while “price change yield” is based on the position of the dividend if rates reset today. In my opinion, “price to floating yield” is clearly the more important metric for these stocks.

Preferred stock price comparison table

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Preferred Stock Strip Yield Comparison Chart

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Preferred Stock Floating Yield Comparison Chart

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Comparison of Preferred Shares for Risky Stocks

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Comparison of preferred stock stripping yields for high-risk stocks

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Preferred Stock Floating Yield Comparison of High-Risk Stocks

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preferred stock data

Besides charts, we also provide our readers with access to several other indicators of preferred stocks.

After testing a series of preferred stocks, we decided to consolidate them into a series of common stocks. After all, we’re still talking about mortgage REIT positions. The preferred stocks that appear in the columns have cumulative dividends because we do not want to cover the preferred stocks without cumulative dividends. You can check using Quantum Online. Links are provided in the table below.

I had to shorten the column names to:

  • price = recent stock price – displayed on chart
  • BoF = Bond or FTF (Fixed-to-Floating)
  • S-Yield = Forfeiture Yield – Shown on Chart
  • Coupon = Initial Fixed Rate Coupon
  • FYoP = Price Volatility Yield – displayed on chart
  • NCD = Next Call Date (earliest stock that can be called)
  • Note: For all FTF issues, floating rates start at NCD.
  • WCC = Worst Cash to Call (worst net cash return from a call)
  • QO link = link to Quantum online page

Second batch:


our goal is Maximize total returnYou achieve these most effectively by including a ‘trading’ strategy. We regularly trade mortgage REIT common stock and BDC positions for the following reasons:

  1. Prices are inefficient.
  2. Long-term stock prices usually revolve around book value.
  3. Short-term price-to-book ratios can deviate significantly.
  4. Book value is not the only step in the analysis, but it is the cornerstone.

We also make allocations to preferred stock and equity REITs. We encourage buy-and-hold investors to consider using more preferred stock and equity REITs.


Compare performance with four ETFs that investors may use for exposure to the sector.

In Search of Alpha's Best Service to Beat Four Dividend ETFs

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The four ETFs used for comparison are:




One of the Largest Mortgage REIT ETFs


One of the largest preferred stock ETFs


Largest Equity REIT ETF


High Yield REIT ETFs. Yes it was horrible.

If an investor believes that preferred stock or mortgage REITs cannot deliver solid returns, we respectfully disagree. While there are many opportunities in this sector, investors should still be aware of the risks. You can’t simply go for yield and do your best. With respect to common stock, additional vigilance must be exercised to protect principal by regularly monitoring prices and updating book and target price estimates.

Ratings: Bullish on RITM and AAIC.

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