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How to Invest for Monthly Dividends

This is the first in a series of articles based on types of vehicles that pay monthly dividends.

Many people have the desire to increase their monthly income which leads to various activities to accomplish this objective. They may work extra hours at their job, start a side business or stuff envelopes for a few extra dollars. These tasks are all legitimate ways to make more money. But most are not aware of the simple way to increase monthly income by getting monthly dividend checks.

Truth is that many people don’t realize that this is a great time to invest in dividend securities. Yes, the market was scary throughout 2008 and 2009 as the markets tanked and the economy sunk into a recession. Unemployment reached double digits in many areas across the United States. During volatile times, investors watch as their growth and technology stocks get hammered until they reach new lows in price. However, the best time to invest is when there are signs of an improving economy. This is what has happen over the last six to 12 months as the markets started trending up and stock prices reached new 52-week highs.

So why would you invest when the market has already started to recover? During the economic meltdown lead by the imploding debt crisis, companies started to batten down the hatches by conserving their cash. During the last few quarters, companies in the S&P 500 had more cash and current assets on their balance sheet than in the last decade. There are several things companies can do with this cash. But the one that is of interest to us is companies using the cash to increase dividends. Therefore, if you purchase stock in a stable company, there is a better than average chance that the dividend will increase in the future.

This increase in dividends will be a positive for many investments that pay monthly dividends. The result being that your dividend yield on cost increasing over the next few years. Generally, when dividends increase the share price will follow. the investor will have more income from the dividend increase and potential for a capital gain if share prices increase. This is the reason why now is a good time for dividend investing.

How do you invest for monthly income? Today, there are several investment vehicles designed to pay monthly dividends. These include closed-end ETFs, business development companies, royalty trusts, REITs and even high-yield corporate bonds. As we progress through this series, each of these investments will be examined in greater detail with specific company names that are potential investments paying dividends of 10% of more. Yes, some of these investments pay at or above 15% yields today.

Here is a couple monthly dividend payers to consider:

Global Net Lease (GNL)

Dividend Yield: 11.22%

Global Net Lease (NYSE:GNL) is another REIT, primarily serving the commercial market. It owns properties in the United States and Europe, and rents to quality tenantslike FedExFamily Dollar and ING Bank, organizations that can not only reliably pay their rent as it comes due, but outfits that tend to stay put once they establish roots.

There’s a bit of a twist Global Net Lease brings to the table that allows it to juice its payout to its current yield of 11.22%, however. It also acquires much of its rental real estate through an arrangement called a sale-leaseback.

In simplest terms, a sale-leaseback lets a property-owning company free up the value of real estate by selling a space it owns to a landlord like Global Net Lease, and then remain in that space as a tenant. It’s a win-win scenario, as the renter enjoys a big cash infusion and Global Net Lease has a tenant already lined up.

Horizon Technology Finance (HRZN)

Dividend Yield: 10.23%

Finally, Horizon Technology Finance (NASDAQ:HRZN) has earned a spot on a list of monthly dividend stocks to mull. As the name suggests, Horizon Technology Finance provides capital to young, upcoming technology outfits, though it doesn’t cater strictly to the tech sector.

It’s also heavily involved in the development of life science and biotechnology companies. Its portfolio includes biotech names like AccuVein and Celsion, along with traditional tech plays like cybersecurity company Control Scan and communications technology player Xtera.

Its results are as erratic as what you’d expect from major technology names, but it’s worth the wild ride. Horizon’s yielding 10.23% at its current price, and it has not had any sustained trouble affording its dividend payment.

Learn more about investing for monthly income here.

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3 High Yield REITs with a Bullish Outlook

Shares of high yielding REITs have been relatively flat in August.  The Vanguard REIT ETF (VNQ), which tracks the performance of an index that measures the performance of publicly traded equity REITs, is up over 14 percent this year, nearly double the Dow Jones gain of 8 percent over the same period.  Investors have looked to mortgage REITs to take advantage of the recovering U.S. housing market. Mortgage REITs do not directly invest in real estate but invest in the mortgages on real estate properties.

While the housing market has gone from bad to less bad, these REITs have just declared higher dividends for their investors.  Each of these REITs has high dividend yields over 10% with a Bullish outlook.

Newcastle Investment Corp. (NYSE: NCT) announced that its Board of Directors has declared a quarterly dividend of $0.22 per common share for the third quarter of 2012, representing a 10% increase from the prior quarter’s dividend of $0.20per common share. The dividend is payable on October 31, 2012 to shareholders of record on October 1, 2012.  Newcastle has a current dividend yield of 10.3%.

Newcastle Investment announced that it has completed the sale of 100% of its interests in CDO X in connection with the liquidation and termination of CDO X.  Newcastle received $130 million for $89.75 million face amount of subordinated notes and all of its equity in CDO X.  The sale and resulting deconsolidation of CDO X from the Company’s balance sheet will eliminate the impact of CDO X’s negative net book value and generate an approximately $200 million gain for the third quarter.

Newcastle has an equity summary score of 8.7 out of 10 for a Bullish outlook.  First Call analysts’ consensus has a Buy rating of 1.7.  Newcastle has a 12-month price target of $8.75.

Newcastle Investment (operated as a REIT) focuses on investing in and actively managing opportunistic investments in real estate related assets. The Company primarily invests in two distinct areas: (1) Residential Servicing and Securities and (2) Commercial Real Estate Debt and Other Assets.

The Board of Directors of CreXus Investment Corp. (NYSE: CXS) declared the third quarter 2012 common stock cash dividend of $0.32 per common share.  This dividend is payable October 25, 2012 to common shareholders of record on October 1, 2012. The ex-dividend date is September 27, 2012.

This is an 18.5% increase from the prior dividend of $0.27.  CreXus Investment has a current dividend yield of 10.2%.  EPS is projected to increase 21% in 2013 and 18% in 2014.

CreXus has an equity summary score of 7.6 out of 10 for a Bullish outlook.  First Call analysts’ consensus has a Buy rating of 2.3.  CreXus has a 12-month price target of $12.50.

CreXus (operated as a REIT) acquires, manages and finances, directly or through its subsidiaries, commercial mortgage loans and other commercial real estate debt, commercial real property, commercial mortgage-backed securities and other commercial and residential real estate-related assets.

New York Mortgage Trust, Inc. (NYMT) announced that its Board of Directors declared a regular quarterly cash dividend of $0.27 per share on shares of its common stock for the quarter ending September 30, 2012. The dividend will be payable on October 25, 2012 to common stockholders of record as of September 28, 2012.  New York Mortgage has a current dividend yield of 14.5%.

New York Mortgage has completed an underwritten registered public offering of 10,000,000 shares of common stock at $6.73 per share.  New York Mortgage also granted the underwriters an option to purchase up to an additional 1,500,000 shares of common stock.  The proceeds will be used to purchase more assets.

New York Mortgage has an equity summary score of 9.0 out of 10 for a Bullish outlook.  First Call analysts’ consensus has a Buy rating of 2.0.  New York Mortgage has a 12-month price target of $8.25.

New York Mortgage invests in mortgage-related and financial assets and targets multi-family CMBS and Agency RMBS, including Agency RMBS consisting of adjustable-rate and hybrid adjustable-rate RMBS and Agency IOs consisting of interest only and inverse interest only RMBS that represent the right to the interest component of the cash flow from a pool of mortgage loans.

Mortgage REITs are Still a BUY Following QE3

Last week, the Fed announced it will purchase an additional $40 billion per month of Agency MBS. The purchase time frame is open-ended, but will be reviewed as economic developments dictate. In addition to additional purchases, the Fed also extended the commitment to keep interest rates low to at least mid-2015.  We believe that the FED decision is a positive for Mortgage REITS.

In the short term, we may see some profit taking.  Longer term, we believe the technical picture appears extremely strong and fundamentals such as carry and prepays remain favorable.

In addition, investors have looked to mortgage REITs to take advantage of the recovering U.S. housing market. Mortgage REITs do not directly invest in real estate but invest in the mortgages on real estate properties.  The Vanguard REIT ETF — which tracks the performance of an index that measures the performance of publicly traded equity REITs — is up over 15 percent for the year, outperforming the Dow Jones Industrial by a large margin.

We see AMTG, MTGE and AGNC as best positioned to benefit from the announcement given the mix of lower coupon fixed-rate MBS in the portfolio.  As is the case, the positives for book value are offset by lower reinvestment yields on new MBS purchases given the spread tightening.

Apollo Residential Mortgage, Inc. (NASDAQ: AMTG) is a real estate investment trust that invests in and manages residential mortgage-backed securities and other residential mortgage assets throughout the United States.  Apollo Residential Mortgage is trading at $22.488, near its 52-week high.  Apollo Residential Mortgage has a current dividend yield of 13.97%.  Apollo Residential Mortgage is rated a 1.8 (STRONG BUY rating) by First Call analysts.

American Capital Mortgage Investment Corp. (NASDAQ: MTGE) is a real estate investment trust formed in 2011 that invests in and manages a leveraged portfolio of agency mortgage investments, non-agency mortgage investments and other mortgage-related investments.  American Capital Mortgage is trading at $23.23, near its 52-week high.  American Capital Mortgage has a current dividend yield of 13.73%.  American Capital Mortgage is rated a 2.1 (BUY rating) by First Call analysts.

American Capital Agency (NASDAQ: AGNC) invests only in fixed-rate agency securities where payments are guaranteed by the U.S. government or government-owned entities, such as Fannie Mae (FNMA), Freddie Mac (FHLMC) and Ginnie Mae (GNMA).   American Capital Agency is trading at $36.49, near its 52-week high.  American Capital Agency has a current dividend yield of 13.7%.  American Capital Agency is rated a 2.2 (BUY rating) by First Call analysts.

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