Don’t believe the hype that REIT’s dividends are any more stable than government bonds. REITs like American Capital Agency Inc. (AGNC) are benefiting temporarily from abnormally low interest rates caused by massive Federal Reserve money printing. Interest rates have nowhere to go but upward. It is just a matter of time until bond investors wake up, smell the smoke, and start running for the exits. Don’t get trampled.
The market participants can see all the money printing. They will demand an inflation premium for the bonds they are prepared to purchase. This means that they demand higher interest rates. Higher interest rates will squeeze AGNC’s profits. They will be forced to cut their dividend drastically. Just understand the risks of owning AGNC shares. Their dividends are enormous right now. That is mighty tempting. Don’t let your AGNC shares exceed 5% of your high dividend stock portfolio.
Subscribe today at www.myhighdividendstocks.com/feed to discover high dividend stocks with earning power and strong balance sheets. AGNC’s earning power is very precarious.
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SOURCE: The Bedford Report
Jan 31, 2011 11:25 ET
REITs Remain the Top Destination for Dividend Investors
The Bedford Report Provides Analyst Research on Annaly Capital & American Capital Agency
NEW YORK, NY--(Marketwire - January 31, 2011) - In the past year Real Estate Investment Trusts (REITs) have been one of the most popular investments in the financial sector. Since the start of 2010, the Vanguard REIT ETF has surged more than 30 percent while the overall financial sector has been relatively neutral. REITs' ability to generate this significant capital appreciation is one of the industry's main allures, as most investors flock to REITs for their hefty dividends and stability. In fact, most of the success of the industry in the last year can be attributed to low interest rates. When interest rates get this low the return on dividends can far exceed that of bonds. The Bedford Report examines the outlook for diversified REITs and provides research reports on Annaly Capital Management, Inc. (NYSE: NLY) and American Capital Agency Corporation (NASDAQ: AGNC). Access to the full company reports can be found at:
www.bedfordreport.com/2011-01-NLY
www.bedfordreport.com/2011-01-AGNC
The Vanguard REIT index had been stagnant for most of January, however it surged last week as investors bought up a number of the fund's top components on speculation of a wave of M&A activity in the industry.
M&A speculation in the REIT sector increased after ProLogis confirmed it is in talks with rival AMB Property about a possible merger. The two industrial REIT giants have a combined market cap of $13.9B, and are considering an "all-stock, at-market transaction, based upon the unaffected trading prices of the two companies' stock prior to media reports of a possible merger."
The Bedford Report releases regular market updates on REITs so investors can stay ahead of the crowd and make the best investment decisions to maximize their returns. Take a few minutes to register with us free at www.bedfordreport.com and get exclusive access to our numerous analyst reports and industry newsletters.
Companies such as American Capital Agency and Annaly earn their money on the spread between low-interest short-term borrowing and purchasing high-interest long-term securities, which leads to solid profits given the current conditions. Federal Reserve Chairman Ben Bernanke says that he is prepared to keep rates in the range of 0 - 0.25 percent for an extended period if the unemployment numbers don't drop significantly.
Solid profits for a REIT keep those dividend payments stable. Presently, American Capital pays an annual dividend of 5.60 for yield of about 19.60%. Annaly, meanwhile, pays an annual dividend of 2.56 for a yield of 14.40%. While high yielding dividend paying stocks are appealing, be forewarned that companies can cut, slash, or suspend dividends at any time, often without notice.
Link to original article: http://www.marketwire.com/press-release/REITs-Remain-the-Top-Destination-for-Dividend-Investors-1387799.htm
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