George Jarkesy

Uncle Sam, as you may well know, is in the money printing business, QE 1-4 and then probably more, at least until after the 2014 election. With the events of Government sponsored theft unfolding in Cyprus, QE will now have more runway to continue as E.U. depositors move into dollars.  You know the saying “don’t fight the Fed”.  That presents a problem, where do you get yields that can beat the market and help you rebuild your retirement after The Great Recession?  It’s time to look at the mortgage REIT Companies. Now, you may not realize it, but America has for all purposes nationalized the home mortgage market. At this time 9 of every 10 new mortgages are backed by the U.S. taxpayer .

The Government Takes Over the Mortgage Market

Percentage of all new mortgages backed by the U.S. government

Note: Data for 2012 is through September. Source: Inside Mortgage Finance

No, I completely disagree with this move by our Government; however, I am still a conscience capitalist with plans that are not yet paid for. With this new reality of Government backing, portfolios should include a few Mortgage REIT Companies. I have identified three mortgage REIT’s that look attractive, combined they have an 11.4% dividend yield. These three REIT’s own residential mortgage backed securities, either issued by or guaranteed as to principle and interest by US Government agencies.  Looking at these three REIT’s, they have upside appreciation potential from here of 35-40%

Arlington Asset Investment Corp.  (NYSE: AI) currently pays a dividend yield of 13.57% and has a dividend growth rate of 13%. They have forecasted earnings of $8.33 per share, a P/E ratio of 3.1 and earnings yield of 32.3%.

New York Mortgage Trust (NYSE:NYMT) currently pays a dividend yield of 14.21% and has a dividend growth rate of 10%. They have forecasted earnings of $1.08 per share, a P/E ratio of 6.79 and earnings yield of 14.74%.

Dynex Capital (NYSE: DX) currently pays a dividend yield of 10.63% and has a dividend growth rate of 17%. They have forecasted earnings of $1.30 per share, a P/E ratio of 8.39 and earnings yield of 11.92%.

Like it or not, politics aside, the US Government is in the home mortgage business. I believe the devaluing of US homes, for the most part, is behind us. The dividends are great and they should keep you ahead of inflation for the next few years. However, make a mental note I expect the second half of the decade to see higher inflation and you may need to reassess your exposure to the mortgage REITs.  For now though, as a little lagniappe or bonus, if these markets hold up, you may see appreciation in the price between 35-40% from current prices.


George Jarkesy

George is the host of the nationally syndicated “George Jarkesy” radio show and also a frequent commentator and guest on FOX Business News, FOX & Friends and CNBC.