A Reliable Income Stream Yielding More Than 10%?
In the U.S., the largest expense for the average family is housing. So unsurprisingly, to many homeowners, mortgage payments represent the biggest financial burden. In this article, I’m going to show you a way to make it even.
Long-term readers of this column would know that here at Income Investors, we are big fans of real estate investment trusts (REITs). These entities are essentially giant landlords. By collecting rent payments from tenants, they can pay regular dividends to investors.
However, owning physical properties is not the only thing a REIT can do. They can also invest in mortgages. By collecting mortgage payments from property owners, mortgage REITs (commonly referred to as mREITs) can also dish out reliable dividends to shareholders.
AG Mortgage Investment Trust Inc (NYSE:MITT) is a good example of this.
Headquartered in New York City, AG Mortgage Investment Trust invests in a diversified portfolio of residential and commercial mortgage assets, as well as other real estate-related securities and financial assets.
As of June 30, 2018, the company’s total investment portfolio had a fair value of approximately $3.6 billion. (Source: “Q2 2018 Earnings Presentation,” AG Mortgage Investment Trust Inc, August 7, 2018.)
Right now, the No. 1 reason to consider this mREIT is its generous dividend policy. Earlier this year, the Board of Directors of AG Mortgage Investment Trust raised its quarterly dividend rate from $0.48 per share to $0.50 per share. With MITT stock trading at $18.90 apiece, the company offers investors an annual dividend yield of 10.6%.
Because the dividend comes from other people’s mortgage payments, I would suggest you put it toward your own mortgage to help pay it down faster. But like all dividends, there’s no restriction on what mREIT investors could do with the cash.
AG Mortgage Investment Trust Inc: Is the Dividend Safe?
Of course, whenever you see a double-digit yielder in this day and age, you’ll want to make sure that the company can make enough money to cover the payout. So let’s take a look at MITT stock’s financials.
The company reported earnings last month. In the second quarter of 2018, AG Mortgage Investment Trust generated core earnings of $0.55 per share while declaring a quarterly cash dividend of $0.50 per share. That came out to a payout ratio of 90.9%. (Source: “AG Mortgage Investment Trust, Inc. Reports Second Quarter 2018 Results,” AG Mortgage Investment Trust Inc, August 6, 2018.)
In the first half of this year, the company’s core earnings totaled $1.14 per share. Since MITT stock declared total dividends of $0.98 per share during this period, it achieved a payout ratio of 86.0%, also leaving a margin of safety.
Furthermore, while homeowners may default on their mortgages, most of MITT stock’s investments are backed by government agencies.
In fact, as of June 30, 2018, 61.5% of AG Mortgage Investment Trust’s portfolio by fair value consisted of agency mortgage-backed securities, or agency RMBS.
When you invest in an agency RMBS, the principle and interest payments are guaranteed by a U.S. government agency like the Government National Mortgage Association (Ginnie Mae), or a federally chartered corporation, such as the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac).
As it stands, MITT stock’s 10.6% yield could be an opportunity.