Real Estate Investment Trusts are publicly traded companies that allow individual investors to buy shares in real estate portfolios that receive income from a variety of properties. They allow investors to easily invest in the real estate sector, which includes companies that own, develop, and manage residential, commercial, and industrial properties. Among other requirements, REITs are required to pay out at least 90% of their taxable income as dividends.

For value investors and dividend income seekers, there are few better values on Wall Street right now than mortgage real estate investment trust (REIT).

The following REITs have the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows you’re paying less for each dollar of profit generated.

1. Annaly Capital Management, Inc. (NLY)

Our first REIT stock pick is Annaly Capital Management. The Company has market capitalization of 13.2B, a P/E ratio 3 and it’s current dividend yield is at 9,31%. NLY invests in residential and commercial real estate.

Annaly announced in late March that it had agreed to sell its commercial real estate business for $2.33 billion to Slate Asset Management L.P., a global investment and asset management firm with a focus on real estate. The transaction is expected to be completed by the third quarter of 2021. Annaly reported earnings of $0.29 per share in the first quarter of 2021, up from $0.21 during the same period a year ago. The net interest income or the difference between income from its assets and expenses associated with them was $687.4 million, up from $51.1 million a year ago.

Another thing that makes Annaly such an intriguing buy for conservative investors and income seekers is its reliance on agency securities. An agency asset is one that’s backed by the federal government in the event of default. Even though agency assets offer lower long-term yields than non-agency assets, the safety of this governmental protection allows Annaly to use leverage to pump up its profits.

Annaly Capital Management isn’t going to double your money overnight, but it’s averaged around a 10% dividend yield for more than two decades. This is a prudent and time-tested management team that continues to deliver for its shareholders.

2. AGNC Investment Corp. (AGNC)

Our second REIT stock pick is AGNC Investment corp. The Company has a market capitalization of 9,8B, a P/E ratio of 3.3 and it’s current dividend yield is at 7,71%. AGNC Investment invests mainly in residential mortgage-backed securities (MBS) whose interest payments and principal are guaranteed by a U.S. agency or the federal government. The company serves customers across the U.S. The company invests on a leveraged basis and finances its holdings through collateralized borrowings structured as repurchase agreements.

As a REIT, AGNC doesn’t pay corporate taxes, provided that it distributes the vast majority of its net earnings as dividends. This is why these stocks are generally highly favored with income investors. Take a look at the chart below, which shows AGNC’s dividend yield over the past several years. The yield is at an all-time low — a result of the stock’s recovery from the COVID-19 related sell-off in spring of 2020 and caution on the part of management. Since mortgage REITs generally like to keep their dividend yield in a set range, AGNC is looking ripe for a dividend hike.

Unlike the mortgage REITs that invested in non-guaranteed mortgage-backed securities, AGNC was never in danger of failing. The company has recouped its pre-COVID-19 book value per share. The next step is probably to recoup the pre-COVID-19 dividend.

3. New Residential Investment Corp. (NRZ)

Our last REIT stock pick is New Residential Investment Corp. The Company has a market capitalization of 5,1B, a P/E ratio of 10.97 and it’s current dividend yield is at 7,29%.

New Residential Investment is a mortgage REIT. It provides capital and services to the mortgage and financial services industries. The company invests in assets with stable, long-term cash flows. Its investment portfolio includes mortgage servicing-related assets, non-agency securities, residential loans, and other related investments.

New Residential’s combination of these two activities helps smooth out the earnings stream. Mortgage originators tend to do well when interest rates fall because they pick up a lot of refinancing demand. On the other side of the coin, heavy refinancing activity is a negative for mortgage-backed securities and mortgage-servicing rights. But the Federal Housing Finance Agency recently made a policy change that should drive more origination volume to the non-qualified mortgage market and help New Residential’s origination business.

The company is also a bit of a value stock, trading a little under book value, which means the market is attributing little value to the origination business.

by Styliana Charalambous Head of Market Research
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