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Mortgage REITs Demolished | Seeking Alpha

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Life support portfolio? Don’t give up yet. The time to give up was the end of last year. Now you may see through it.


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

Want to hear something great?

I’m actually bullish on some of the mortgage REITs that have always been bearish.

Annaly Capital Management (NLY) grossly overvalued due to a stupid premium to book value? How about all the shots at Two Harbors (2) to trade around book value?

Bearish on AGNC Investments.AGNC) also once or twice.

Those ratings have turned around. We’re not saying his 21% dividend yield on NLY is safe. However, the stock is trading at a discount of approximately 15% to current book value estimates. Scott Kennedy recently posted his calculationsThis is available to anyone with Seeking Alpha Premium or free articles left. Of course, all members of the REIT forum are also available.

This is much better than trading with a 7% premium. But it wasn’t just stock prices that fell. Spreads between MBS and Treasuries continued to widen. It reduced the book value, but the price plummeted.


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They said the price was too high. The price was too high. Shocker. what happened? Prices plummeted. It can happen to any stock. If the price is too high, it will even happen.

However, the size of the share price decline is sufficient to warrant an upgrade. There is still a lot of risk, but the spread between MBS and hedges is much more attractive. To reach these spreads, the book value fell significantly. How can I protect myself from it? Don’t buy mortgage REITs at a premium (especially a large premium) to their book value. Great!

Let’s summarize:

We switched bullish on NLY, AGNC, and TWO. Also, Dynex Capital (DX), but that was the case earlier.

preferred stock

Remember when most of my articles threw down the notion that preferred stock was safer?

NLY-F (NLY.PF) is trading at $23.86. Below call value? of course. Significantly below call value? No. Is NLY-F facing a dividend cut? No, is it a good deal today? It depends on the measurement method. Comparing NLY-F and NLY-I (NLY.PI), AGNCM (AGNCM), Agungko (Agungco), AGNCP (AGNCP), or AGNCL (AGNCL), NLY-F is less surprising.

NLY is down about 48% year-to-date. Most preferred stocks fell less than half that amount.

Book values ​​of NLY and most other mortgage REITs have fallen significantly. What do you think happened to book values ​​of preferred stock? No change. That’s how preferred stock works.

Hate book value? OK, let’s try this image:


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Ordinary dividend down. NLY-F is a ‘fixed to floating’ stock and the ‘floating’ portion has just started, so the preferred dividend is poised to increase.

Investor buy and hold

I often tell investors that common stocks are for trading with people who don’t know what they’re buying or selling. Yet investors often declare themselves smarter because of their focus on income.

So which strategy worked better for NLY’s investors: common stock or preferred stock? You can find out how much an investor had to invest the day before (including reinvesting dividends) to reach $100,000 today. Let’s see.


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how about that? Preferred stock wins only on a daily basis of recorded history. However, events may differ in unrecorded history, perhaps in another timeline.

Of course, for NLY the risk/reward is much improved. For investors willing to trade stocks instead of saying they ignore prices (and scream bloody murder about dividend cuts), there’s a good chance to bounce back here.

does that mean today bottom? No, it could fall further. So what’s special about today? A significant shift in risk/reward has resulted in a significant increase in investment expectations. What we are doing is basically the same as counting cards. It’s perfectly legal. No insider information required. We simply understand how to model each card played much better than its opponent. nice and simple. We did our math homework.

How’s the yield?

The cost base for an investor who purchased NLY five years ago is approximately $48.50 per share. The yield from that initial cost is currently only 7.25%. I’m not one of his “cost effective” guys, but I need to reach out to them. Income investors should be aware of the impact of a dividend cut.

if still If NLY’s current dividend is maintained, an investor who bought NLY for $10,000 five years ago would have earned less than an investor who bought NLY-F for $10,000 at the same time.

NLY-F’s stock price has fallen about 5% to 8% over that period. Over that period, NLY’s stock has fallen more than 65%.

Now that NLY is no longer overpriced, the same investor would exclaim:

  • NLY is garbage!
  • I will be out when I return to the cost base!

Stop saying yield is everything. That’s why investors are confused. They go into this for yield, close their eyes and start screaming that someone will fix them.

please. NLY is finally trading at a bargain price. So who are the bagholders who double down on real bargains (bargains, not steals), and who only wanted stocks when they were too expensive?

it’s not our fault

Please don’t blame me or Scott Kennedy if you lose money on NLY. has no primary). However, it’s still a pretty good sign.

Evaluation list

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Most of the decline occurred during periods of clear bearish sentiment. Charts are updated only when new articles are published. I am sharing my own and Scott’s history as we work together to provide a REIT forum. Just like Scott posted his NLY upgrade (early this morning), you’ll see the upgrade in my post as well.

This is very good for the article’s publication history. Especially since we want to get the survey to our members first. Despite the delay, it’s a history of solid ratings.

Best Deal?

Is NLY the best deal in this space? No, definitely not. But it’s time for an update for the many readers who are curious about it.

Common stocks have some better deals, and there are also some preferred stocks that offer great yields and a big upside to call value. Some of these stocks will switch to floating rate within two years. Unless interest rates drop dramatically, these stocks will either receive significantly larger dividends or be called (or both). While we don’t expect either stock to hit $0, there are still significant differences in risk levels between stocks.

The rest of the charts in this article may be self-explanatory for some investors.However, if you want to know more about them, I recommend taking a look series notesThe portions below are reproduced in each article for investors to easily access the updated charts. A gift from me to my readers.

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 to meet targets and make trading decisions. It is available on our service, but their estimates are not included in the table below. However, neither REIT actually provides a quarterly “core EPS” metric.

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.

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 reliable 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.


  • Bullish on AGNC, NLY, DX, TWO

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