Investors are being cautioned to not dump their mortgage real estate investment trust stocks too quickly due to the dividend payout yields remaining high, said CEO and co-founder of NewOak Ron D'Vari.
However, the mREITs will remain profitable for investors as long as the Federal Reserve keeps the short rates extremely low.
During the past few years agency mREITs yielded higher than most other stocks, including equity REITs. The high yields were generated by borrowing at the short rate and lending at the higher first-rate mortgage rates.
As a result, mREITs have paid out double-digit dividends while bank deposits have paid close to nothing due to leveraging.
"Despite the jump in FRM rates, many mREITs have continued their still high dividend rates, albeit somewhat smaller," D'Vari explained.
He concluded, "The income from the mREITs underlying mortgage portfolios haven’t changed, and neither have their short-term borrowing costs. Given it will be quite a while before the Fed increases short rates, mREITs ability to pay high yield should last at least another year or two until they start to hedge their portfolios."