Why You Should Familiarize Yourself with REITs

Mortgage real estate investment trusts (REITs) may be the most lucrative investment you’ve never heard of. Real estate is volatile, and Wall Street generally isn’t a big fan. But these high-yield dividend stocks can put a tidy sum in your pocket over time. Two in particular— Annaly Capital Management and AGNC Investment—are red hot buys right now. Here’s what you should know.

What Is an REIT?

In a nutshell, an REIT is all about moving money around. These businesses borrow money at low short-term rates and then invest it in mortgage-backed securities or other high-yield, long-term assets. In general, this produces stable net margins that are good for investors. Of course, this type of company is highly sensitive to interest rates and sudden changes in monetary policies. Naturally, when the Fed aggressively hiked rates to curb inflation, that decision had a real impact on REITs.

How You Can Profit

Despite these headwinds, things are still relatively good for the largest mortgage REITs, Annaly and AGNC. The inevitable dip following the rate hikes has put them in reasonable territory for many investors, and both have found their footing in the new financial climate. They’ve adjusted their portfolios to include primarily “agency” assets, which are backed by the federal government in case of default. Additionally, the Fed seems ready to make careful, well-telegraphed rate cuts that can give both companies a boost without shaking them up.

The net result is that Annaly is currently yielding dividends of nearly 13%, while AGNC’s dividends are close to 15%. The average dividend stock yields just over 9%, making these two REITs’ numbers formidable even when battling massive headwinds. As the financial climate continues to improve, their dividends could be poised to rise even higher. If you’re looking for a long-term investment with solid and predictable dividends, REITs may be worth your consideration.